Insights from Mergermarket's Italian Mergers & Acquisitions Forum
Prior to the 2007-2009 financial crisis, Masera argues, there had been only micro-prudential regulation, which not only excludes the study of internal risks but also excludes the systemic importance of the size, degree of leverage and interconnectedness with the rest of the system of individual institutions
2 November 2009
I recently attended Mergermarket's Italian Mergers & Acquisitions (M&A) Forum in Milan, and it proved to be an exceptional platform for discussion as well as an excellent way to build and foster business relationships. Needless to say, in the current business climate the main focus of discussion was on the financial crisis, its recovery and its impact on the M&A and private equity markets. PriceWaterhouseCoopers' M&A market observations, citing a decrease of around 80% of European investments (leveraged buyouts), a lack of banking credit, a lack of performing target organizations and a lack of alignment of value expectations between sellers and buyers.
One of the highlights of the event was a panel led by the banker and former Italian Minister of Budget Rainer Masera, who discussed the prospects for the Italian economy. He sent a somewhat optimistic message to attendees, saying "With reversals of stimulus and gains from recovery, primary balances will improve, but remain above pre-crisis levels". Masera also acknowledged that changes and reforms needed to be made in the financial sector in order to promote a steady recovery and a healthy global financial system. In particular, he stressed the importance of complementing micro-prudential regulation (which studies the responses of an individual bank to exogenous (or external) risks) with macro-prudential regulation (which studies the responses of endogenous (internal) risks).
Prior to the 2007-2009 financial crisis, Masera argues, there had been only micro-prudential regulation, which not only excludes the study of internal risks but also excludes the systemic importance of the size, degree of leverage and interconnectedness with the rest of the system of individual institutions. He explained that this is why we need to complement micro-prudential regulation with macro-prudential regulation. This would allow macro-prudential regulation to counteract the natural decline in measured risks in a boom economy and the subsequent rise in measured risks in a subsequent market collapse. Many of these issues are discussed in Deloitte's Regulatory Radar Newsletter.
Panel members at the Italian M&A Forum also included staff from Alvarez & Marsal, who talked about overall trends in restructuring. They suggested that the impact of globalization is threefold: it has led to an increasing number of cross-border restructuring engagements, it pushed Europe and Asia to seek the efficiencies of U.S.-style restructuring practices, and that this has developed best practices across these geographies.
Alvarez & Marsal has observed that financing both for acquisitions as well as for restructuring has become more complex and buyers are now more global. The most well-known example of this trend is Alvarez & Marsal's work on Lehman Brothers, the largest and most complex bankruptcy in history with over US$600bn in liabilities covering multiple countries and legal systems.
Subsequent to these types of earthquakes in the financial world, the landscape of rehabilitation is changing and moving away from a receivership/liquidation model, and regulations are becoming more stringent and regulators more pro-active. This interesting and informative event gave me food for thought, and I look forward to seeing if Rainer Masera's comments come to fruition.