Italy’s Debt Collectors Seek Mergers After $265 Billion Binge

(Bloomberg) -- Two suitors are competing for one of Italy’s biggest managers of bad loans, a battle many think will set the tone for a flurry of similar deals through 2020.

Credito Fondiario SpA, controlled by Elliott Management Corp., is proposing to merge itself into the Cerved Credit Management and list the combined entity within two years, according to people familiar with the matter. At the same time, Sweden’s Intrum AB is making a cash offer to buy Cerved, the people said, asking not to be named because the information isn’t public.

Representatives for Credito Fondiario and Intrum declined to comment. An official at Cerved Group, owner of Cerved Credit Management, also declined to comment.

The transaction is likely to be the first of many among the servicers of Italy’s busted mortgages and business loans, according to Massimo Famularo, head of Italian non-performing loans at advisory firm Distressed Technologies.

Banks under regulatory pressure to sell off bad debt left over from the last recession triggered a 239 billion-euro ($265 billion) buying frenzy among investors seeking to snap up portfolios at a discount, according to estimates by Deloitte. But the portfolios are spread thinly across a multitude of servicing companies, making it harder for them to turn a profit. Merging with rivals presents a way to scale up and boost margins, according to Famularo.

“As the Italian market is still pretty fragmented, joining forces with other players is a way to increase volumes,” he said.

Cerved Credit Management is worth about 480 million euros or about 7.5 times next year’s earnings, in line with the average multiple for similar deals in Italy’s servicing industry, Daniele Ridolfi, an analyst at Kepler Cheuvreux, wrote in note on Friday.

“A deal with Intrum would combine the number two and number three players in the market, while a tie-up with Credito Fondiario would reinforce a vertically integrated player,” Ridolfi said.

An agreement on Cerved is not yet certain, however, and other recent attempts at tie-ups have ground to a halt. Credito Fondiario was unsuccessful in an attempt to forge a partnership with Banca IFIS SpA in October.

But NPL sales by banks are starting to slow and servicers will be increasingly tempted to start looking at acquisitions as a way to fuel expansion and profitability.

“There’s an inevitable need for, if not consolidation, certainly a scaling of operations in order to digest all of the volumes that have been taken on,” said Justin Sulger, head of credit at Anacap Financial Partners.

To contact the reporters on this story: Antonio Vanuzzo in London at avanuzzo@bloomberg.net;Sonia Sirletti in Milan at ssirletti@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Chris Vellacott, Katie Linsell

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