The strategic role of turnaround funds

Turnaround funds represent institutional private equity investors specialized in the acquisition of financially distressed companies, with the aim of implementing an operational restructuring plan to make them profitable again.

Operations are therefore managed by players with great professional experience in various entrepreneurial cases. Subsequently, the support provided by these investors is particularly significant in relation not only to the resources, but also to the managerial know-how contributed to the company in terms of strategic and operational consultancy. The intervention is formalized through a multi-year economic and financial recovery plan, which represents the core of the company recovery process. In brief, the turnaround process can be divided into three macro-phases: emergency management, planning of relaunch strategies, return to development.

With reference to the Italian competitive context of turnaround operators, we can see that there has been a significant evolution in the last decade, relating both to the number of active players, but above all to the amounts invested: between 2011 and 2016, active turnaround funds were 24 and the value invested in distressed companies was equal to Euro 250 million, while between 2017 and 2021 there were 30 operators for a total invested value equal to Euro 630 million, therefore more than doubled compared to the previous five-year period.+

The main substantial factor that contributed to this important development is the role of NPLs (Non-performing loans) on the financial markets. Since 2015, Italian banks have carried out an important de-leveraging and de-risking activity, transferring a substantial amount of non-performing loans mainly to servicing platforms highly specialized in distress operations, allowing the entry of turnaround operators. It is clear that the role of turnaround buyers is crucial for operational recovery to ensure business continuity and that the presence of these players in Italy, although growing rapidly, is still limited to a niche.

In any case, we will see a further growth in the turnaround market over the next few years, also thanks to the recent developments in the regulatory framework, which will make it easier for specialized operators to enter. In fact, one of the guidelines of the new Code of Corporate Crisis is the centralization of the role of the entrepreneur/lender, increasingly favouring interventions aimed at promoting business continuity over liquidation procedures.