the turnaround fund market | Italy

1.1 Definition and scope of study

Turnaround capital, an activity managed by turnaround funds, is a specific category of private equity which refers to the provision of capital to companies in financial difficulty. In particular, turnaround investors aim at enabling weakened companies (such as those with great losses, or which are undergoing a strategic repositioning) to recover by providing capital and, sometimes, human resources. The main purpose of such financial and managerial support is to get the company out of a difficult situation and, in the long term, to restore its economic health and create value.

In Italy, turnaround funds were introduced as an industrial solution to the problem of non-performing loans, since they act directly on the debtor company, trying, at least in intention, to avoid its bankruptcy and to limit the institutions’ losses. After just few years of operations, the four turnaround funds of Italian origin (Oxy Capital, Pillarstone, Idea ccr, QuattroR) have taken over the operational management of around 20 companies in difficulty, for a total debt value of over €2 billion. Therefore, they managed to establish themselves as an alternative for banks, and sometimes, even banks decide to transfer non-performing loans they have in their portfolios to such entities.

Turnaround funds is a sector with great potential: in Italy, those loans which are categorized as “unlikely to pay” reach a value of €140 billion. Therefore, there is plenty of room for the four companies listed above, and for new entities too, to invest in the growth of such business.