Restructuring

Corporate insolvencies and restructurings in Europe – results of a Europe-wide expert survey and resulting impli­cations for communi­cation

When will the wave come? A much-discussed question since the beginning of the pandemic. But it is not about rising numbers of Covid-19 cases, but about the possible wave of insol­vencies that hangs like a sword of Damocles over the global economy.

As part of a recent study by /amo, our net­work of leading inter­national communi­cations consultancies, companies and market experts were asked about their expectations regarding the develop­ment of insol­vencies in 2021 and the out­look for 2022. In addition, they were asked to estimate how the end of state aid will affect various industries. The survey was conducted in Germany, France, Spain, Italy, the United Kingdom and Switzer­land.

Different expectations within Europe

Opinions differ on whether and when the much-cited wave of insol­vencies will come:

  • The majority of experts in Germany, Spain and Switzer­land expected an – albeit moderate – rise in insol­vencies this year.
  • In Germany, this share was highest at almost 60 % – even though the govern­ment has promised economic stimulus measures until the end of the year.
  • In France, around 50 % of respondents each predicted that companies would experience increased distress not until in the fourth quarter of 2021 or 2022.
  • In Italy, on the other hand, a slight majority said they did not expect a wave of insol­vencies until 2022, and in the UK it was even more than 80 %. 

This differentiated picture is mainly due to the various designs and durations of state aid in the individual countries.

A French expert noted: “Two components could hinder the recovery: The removal of state aid may affect the cash flow of weakened companies; in addition, access to credit in the context of the economic recovery will be more difficult for companies that already have large debts.”

Retail, hospi­tality and tourism businesses at highest risk of insol­vency

The impact of the pandemic on retail, hospi­tality and tourism is severe. Another sector that has been hit hard due to the long closures is the media and enter­tain­ment industry. Respondents from all European countries agreed that despite ongoing govern­ment support, not all businesses in these sectors will survive – especially in the events sector. 

In the UK, the impact of the pandemic is further merging with that of Brexit: “There are some sectors that have proved very resilient in recent months, parti­cu­larly the tech­nology sector. However, hospitality, leisure and tourism have suffered badly, not only because of a lack of visitors, but also because many inter­national staff have left the UK,” one of the inter­viewees noted.

The statement made a few weeks ago has now come true in other industries in the UK: because of the Brexit and the pandemic, many truck drivers have also returned to their home countries – queues at petrol stations and empty super­market shelves now characterise every­day life as a result. The pandemic still dominates, but the gaps that Brexit has torn in the inter­national division of labour are becoming in­creasingly apparent.

Smaller companies will have the hardest time

The inter­national experts agree that small businesses will struggle the most in and after the pandemic, as they will suffer parti­cularly from restricted access to capital and tougher trading conditions.

  • In Switzerland, all respondents were of the opinion that only micro and small enter­prises are having a parti­cularly hard time.
  • The majority of German, Spanish and Italian respondents agreed with this assess­ment.
  • In Great Britain and France, the views were more differentiated – a higher proportion of medium-sized and large companies affected is also expected.

State aid – a blessing and a curse at the same time?

Several of the experts interviewed also saw longer-term problems for companies benefiting from state loans, especially in terms of the conse­quences for the stake­holders involved.

One expert from Germany asked: “What will happen to all the govern­ment loans that are now on the balance sheets of companies with reasonable business models? Will all stake­holders accept to work hard for the next years just to pay back the govern­ment money?”

Another participant raised the question of “how to re­structure balance sheets of companies that have received government-backed loans made by banks with no or low risk. Managing conflicts of interest will certainly be a challenge.”

But how can such conflicts of interest among stake­holder groups be prevented or at least mitigated? The key to this is adequate communi­cation.

The role of communication

Governments inter­vening in crisis situations like the current one face several challenges: they are under high time pressure and need a reasonable data basis to choose which company to provide capital to. At the same time, they are confronted with the expectations of investors, employees and the public. There­fore, also govern­ments need communi­cation strategies that are tailored to the respective target groups in order to be able to moderate emerging conflicts accordingly or, at best, to avoid them from the outset.

This is in­creasingly important as stake­holders have broader access to infor­mation, goods and services through digital disinter­mediation and increased transparency, their decisions have a great impact as a result.

Meanwhile, for companies that receive govern­ment support, it is important to establish a dialogue with the govern­ment that strengthens the relation­ship between the company and its stake­holders.

Furthermore, it is essential to convince stake­holders such as investors, business partners and employees of the sustaina­bility and resilience of the company’s business model through active, target group-specific communi­cation. This also helps to avoid stigmati­zation due to state support and to create security by using the narrative of “state support as a source of strength”.

However, long-term state support can never be a viable option. There must there­fore be an exit strategy from the outset and appropriate communi­cation must be considered and planned – by the govern­ment and by the company. In this way, all stake­holders can be informed in a targeted manner and receive information about individual effects in time. The current example of Luft­hansa shows how communi­cation can be success­ful on the corporate level as well as on the govern­ment side. The state has even earned money with its help, and the company has success­fully asserted itself on the market.

To put it in a nut­shell: adequate communication adapted to the individual target groups at the beginning of state support, during its duration as well as at exit is thus critical for the overall success of the measures.

The article was published in the first issue of the newly published online journal “Restructuring­Business” (issue 1 / 2021, December 2021). You can download the pdf of the original article by Stephanie Verena Prager entitled “Wann kommt die Flut – oder bleibt sie aus?” (in German) here.

The /amo report has been written with our partners: Havas Paris, Maitland/amo, Hirzel.Neef.Schmid.Konsulenten, Grupo Albión and Havas PR.

You can find the full report “When will the wave break? Corporate insolvencies & restructuring in Europe” here.

Photo: wallpapercave

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