The global advisory firm Alvarez & Marsal (A&M) has published its semi-annual Alvarez & Marsal Distress Alert (ADA), assessing the financial health of over 4,700 companies in Europe. The analysis indicates that the percentage of companies in financial distress rose to 9.8% in 2023, the highest level since the onset of the pandemic in 2020. The increase is attributed to the effects of inflation on revenues, higher wages, energy costs, and declining consumer demand.
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Companies with weak balance sheets have increased by 31.3%, reflecting the impact of rising financing costs and impending maturities in a climate of higher interest rates. The number of underperforming companies has risen to 14.8%. Consumer-focused companies such as those in the media, entertainment, and fashion industries are hardest hit by declining consumer demand and rising costs.
Germany reports the highest percentage of distressed companies at 15%, largely due to a recession. Other countries with a large number of distressed companies include the Benelux (12%) and Italy (10.1%). Gioele Balmelli of A&M Restructuring emphasises that European companies are under pressure from falling demand and rising financing costs, likely leading to an increase in restructuring activities.
In Switzerland, the risk of insolvency continues to decline slightly, but sectors such as commodities, media, retail, and healthcare show signs of stress. Despite a slight decrease in the number of underperforming companies, challenges remain for the future, especially for companies with a significant share of exports to Germany. Alessandro Farsaci of A&M highlights that Swiss companies are still resilient, but the pressure is increasing, with a rise in credit agreement violations and an increase in financial restructuring activities.
Source: 4investors