Intrum seen wrapping up analysis on Cerved bad loan unit by mid February: sources

MILAN (Reuters) - Intrum, Europe’s biggest debt recovery firm, is expected to complete its due diligence to potentially buy the bad loan arm of Italy’s Cerved by mid February, two sources familiar with the matter said, as the sector gears up for consolidation.

Italy’s loan recovery industry has boomed in recent years, fed by almost 200 billion euros ($222 billion) in impaired loans shed by banks to tackle the legacy of a harsh recession. With sales slowing, players are looking to grow in size to buttress profits by cutting costs.

Intrum INTRUM.ST, which has set up an Italian joint venture thanks to a 3.6 billion euro deal with Intesa Sanpaolo ISP.MI in 2018, submitted in December a non-binding cash bid to buy Cerved's CERV.MI bad loan business.

The two sources said Intrum’s Italian arm was expected to complete its assessment of Cerved Credit Management’s books by mid February, a necessary step before a binding offer.

The unit has been given a ballpark valuation of around 400 million euros.

The asset has also drawn interest from Credito Fondiario, an Italian bank and bad loan specialist controlled by U.S. fund Elliott, which last year hired Goldman Sachs and Deutsche Bank to assess strategic options.

Credito Fondiario has informed Cerved’s board it would be ready to explore a reverse merger to fold its business into Cerved Credit Management, another two sources familiar with the matter said.

Under the proposal, the combined unit would later be spun off and the majority of its shares distributed to Cerved’s shareholders.

The first two sources said Cerved was keeping open a communication channel with Credito Fondiario, which has remained outside the formal bidding process followed by Intrum.

Cerved, which is working with Mediobanca and Credit Suisse, said in late October it could either sell or merge its bad loan unit.

But investment funds that piled into Italy’s bad loan market during the boom phase, buying both bad loans and collection businesses, are less keen now they face slower growth and higher asset prices - posing a hurdle to investors looking to sell.

Credito Fondiario last year sought a merger with rival IFIS IF.MI, but talks collapsed over governance issues. IFIS CEO Luciano Colombini said on Tuesday they were unlikely to resume.

($1 = 0.8973 euros)

Reporting by Valentina Za; editing by Mark Potter