European Corporate Insights: M&A Opportunities in the Energy Sector

The energy sector has been one of the main players in the field of M&A in recent years due to the growing interest in renewable energies which, although in 2020 it contributed 9% of the energy consumed in Europe – compared to 14% from nuclear energy and 77% generated by oil, gas and coal -, it is set to be the mainplayer in the near future, not only to reach the 2030 Agenda for Sustainable Development Goals (SDG), but also to reduce the dependence on third countries.

Over the past 10 years, Europe has maintained a significant pace of investment in energy, allocating USD 80 billion to the renewable energy sector in 2021. This placed Europe as the second world power in this field behind China. It has been a commitment that, however, has not mitigated the impact of the energy crisis in this region.

The post-pandemic economic recovery and the outbreak of the Russia-Ukraine war have triggered a global energy crisis with unprecedented price hikes, resulting in a year-on-year increase in retail electricity prices of almost 50% since July 2021. As a result, both the EU Institutions and all European countries have taken urgent measures to protect a critical sector such as energy one and ensure citizens’ access to the energy resources.

In addition to public investment to promote sustainable energy, some countries are bringing back conventional sources, such as coal-fired electric power plants. This has encouraged private investors to bet again on the oil and gas sector. It is no coincidence that investment interest in fossil fuels has grown considerably in recent years.

The energy sector, despite facing a slowdown in transactions like all other sectors in 2022, remains one of the targets of private equity, and must adapt to the measures adopted both in the European institutions
and in each country that establishes regulations according to its own particularities. Andersen’s Corporate and M&A practice, together with the Enery group, provides a comprehensive analysis of 15 European, addressing transaction trends in this sector and the regulatory and tax measures adopted by each country to deal with the crisis without overlooking the evolution of the sector and the needs of both the people and the sector.

It is also highlighting the growing trends in the energy market, in line with the SDG, such as energy communities or new clean energy sources such as hydrogen. Andersen’s Energy team is involved in innovative initiatives, such as communities coming together to reduce the cost of installing clean energy and increase efficiency with energy self-supply, in countries such as Spain and Italy, as detailed in one of the examples in this magazine.

Andersen’s Energy team also analyzes the present and future of green hydrogen. It is a resource that has impacted strongly on the market, both because of the interest of investors and companies that have begun the transition to this new energy source, which is expected to be one of the main energy resources of the future.

This new edition of the Corporate and M&A Magazine offers a comprehensive benchmarking analysis of the energy sector in Europe and the new trends for investments in this field. This edition also includes the most recent regulatory developments in Europe and European countries to be considered by the private equity players in their investments in the near future.

ITALY – How has the energy crisis affected M&A transactions in our jurisdiction?

The Italian Government has adopted several legislative measures directly or indirectly relating to restructuring during this pandemic period.

All the successive Law Decrees from the beginning of the Covid 19 pandemic in February 2020 introduced measures to ensure that companies (including those in crisis) affected by the Covid-19 emergency remained in operation, to suspend the activities of the Collection Agent, to support liquidity through the banking system, to support business and to introduce new financial measures to help companies, significant economic measures to help workers and enterprises affected by the new pandemic-related restrictions, to suspend some tax / social security payments, and so on.

In particular, the Italian Government decided to delay several times the entry into force of the new Business Crisis and Insolvency Code (which first appeared in January 2019 with the issue of Legislative Decree 14/2019), which had been initially scheduled for 15 August 2020 and that, following various amendments and additions due to the pandemic crisis, finally come into force – integrated with Legislative Decree 83/2022 of 17 June 2022 – on 15 July 2022, which was the deadline for transposing the EU Directive on Restructuring and Insolvency (Directive No. 2019/1023).

The most important innovations in the new Code are: new tools for the resolution of the business crisis through mitigated warning tools that give entrepreneurs incentives to take voluntary action to overcome the crisis; out of-court crisis resolution tools with limited powers for the judicial authority; company reorganisation using tools that favour business continuity.

It is a change of perspective from the Bankruptcy Act of 1942, because the aim of the new Code is to ensure that businesses remain as going concerns, promptly identifying financial and economic difficulties and offering management teams solutions to overcome the crisis, just as required by the European Restructuring and Insolvency Directive.

The most important innovation in the new Code is the abolition of the “sistema di allerta” [“warning system”] and the introduction of new tools to overcome the crisis as soon as possible, such as negotiated settlements (“composizione negoziata della crisi”). To make the best possible use of this tool, all companies are required to have in place an internal management and accountancy system (“adeguati assetti organizzativi, amministrativi e contabili”) that is suitable for the size and nature of the business, in order to:

  • highlight equity, economic and financial imbalances
  • verify the sustainability of debts and the prospect of business continuity for the following 12 months
  • ensure the availability of the information required for access to the “composizione negoziata” if needed.

In this context, the Code lays down the warnings of a possible crisis, such as over half of all monthly salaries being overdue for at least 30 days; payables to suppliers being overdue for at least 90 days where such payables exceed those that are not yet due; or payables for taxes and social security contributions exceeding the established limits (as regulated by Art. 25-novies of the Act).

If the warnings exceed the thresholds, an invitation to activate a “composizione negoziata” application is made by the Qualified Public Creditors (INPS, INAIL, Agenzia Entrate and Agenzia della Riscossione) and the Auditor, if there is one. Timely disclosure by the Auditor and their supervisory role in the assessment of liability in the event of damage to the company and its creditors are taken into account.

The “composizione negoziata della crisi” is activated by submitting a request to the competent Chamber of Commerce. The entrepreneur must upload some documents (there is a fixed list including, among others, the last three years’ balance sheets, a list of creditors, etc.) on the website asking for an Expert (chosen from a published list of accountants, lawyers, advisors, etc.) to be appointed. The entrepreneur must also carry out a self-test on the website to check that their company meets the requirements for restructuring.

The appointed Expert is a mediator/facilitator appointed to help the company and its creditors reach an agreement.

Pending negotiations, the entrepreneur is fully in charge of the business, but they must keep the expert informed of any extraordinary acts of management or of any activities that are not consistent with the negotiations and the turnaround target. Creditors (especially banks and financial intermediaries) must actively participate in the negotiations.

The entrepreneur can also request protective measures for the company’s assets (such as a stay from enforcement or the filing of bankruptcy, but not from employees’ claims).

The negotiation period can last a maximum of 180 days, at the end of which the expert must issue a final report on how the negotiations were carried out. This period may lead to a mutual agreement on restructuring and rescheduling or a standstill agreement with creditors (the best result) or to no agreement. In this last case, the entrepreneur can: a) file a certified recovery plan (“piano attestato di risanamento”) as per Art. 56 of the Act; b) request the approval of a debt restructuring agreement (“omologazione di accordo ristrutturazione dei debiti”) as per Arts. 57, 60 and 61 of the Act; c) file an application for a simplified composition with creditors (“concordato semplificato”) for the liquidation of assets as per Art. 25-sexies of the Act; and, finally, d) avail themselves of one of the crisis regulation tools provided by the Act.

Out of all these tools, the arrangement with creditors (“concordato preventivo”) under Art. 84 of the Act is the most significant change compared to previous versions.

An entrepreneur in a crisis situation can propose to their creditors a plan that provides for their satisfaction, to at least the same extent as that achievable in the event of judicial liquidation, as a going concern, the liquidation of the assets of the company or the attribution of its activity to an underwriter. The continuity of the business must protect the interests of creditors, starting with employees, but a minimum satisfaction is no longer necessary.

The restructuring plan subject to approval (“Piano di ristrutturazione soggetto ad omologazione”) under Art. 64 of the Act is a brand-new tool.

It is a cross between a recovery plan (“piano di risanamento”) and an arrangement with creditors (“concordato preventivo”): it is possible to deviate from the rules for the distribution of assets provided that there are qualified majorities and the adhesion of all creditors in terms of classes.

In summary, the new Business Crisis and Insolvency Code introduced many innovations, all with the aim of anticipating the business crisis in order to deal with it effectively to the advantage of entrepreneurs and creditors.