Initial Public Offerings Laws And Regulations Switzerland 2024

Introduction

Going public may serve several goals: it may help a company gain access to a broader investor base, raise the capital it needs in order to activate its growth potential and strengthen its market position, or turn its shares into a more liquid and fungible "currency" that may facilitate acquisitions. It may also enable effective employee incentivisation and allow a flexible exit by existing shareholders over time.

Switzerland as a trading venue offers attractive conditions due to its strong financial centre and the stable, issuer-friendly Swiss legal and regulatory regime. On Switzerland's main stock exchange, SIX Swiss Exchange, around 250 shares across all industries are traded, including some of the largest companies in Switzerland and Europe. It offers a liquid market with state-of-the-art trading conditions. Given its importance, and unless indicated otherwise, references in this chapter to listing requirements and reporting obligations refer to the standard rules set by SIX Swiss Exchange. Switzerland's second stock exchange, BX Swiss, is more focused on small and mid-sized domestic issuers. As an alternative to traditional listings, SIX Group (which owns SIX Swiss Exchange) launched SIX Digital Exchange, a fully regulated digital exchange and central securities depository. SIX Digital Exchange offers the listing and trading of tokenised equities and bonds, similar to traditional stock exchanges but in tokenised form based on distributed ledger technology.

With its listing on a stock exchange, a public company becomes subject to additional and more comprehensive regulatory requirements, stricter supervision by regulatory authorities and increased scrutiny by the public. An IPO candidate, its shareholders, board of directors and executive management are thus well advised to prepare such a step carefully and familiarise themselves with such additional regulatory requirements, as early and holistic preparation is key in this process.

Switzerland has generally seen strong IPO activity over the past few years, particularly prior to the COVID-19 pandemic and the Russia-Ukraine conflict. In 2023 and 2022, the following companies listed equity securities on SIX Swiss Exchange with an initial market capitalisation of more than CHF 100 million:

• R&S Group Holding AG (CHF 295 million, 2023);
• Sandoz Group AG (CHF 10.5 billion, 2023);
• Accelleron Industries AG (CHF 1.7 billion, 2022);
• EPIC Suisse AG (CHF 681 million, 2022);
• Talenthouse AG (CHF 599 million, 2022); and
• Xlife Sciences AG (CHF 270 million, 2022).

Despite the downturn in 2022 due to the COVID-19 pandemic, international economic trends (such as rising interest rate concerns and volatility in the capital markets) and, in particular, the Russia-Ukraine conflict, the overall issue volume reached over CHF 3.3 billion that year, more than half of which was due to the spin-off of Accelleron Industries from ABB. This was significantly exceeded in 2023 with an overall issue volume of approximately CHF 10.8 billion, which was predominantly driven by the spin-off of Sandoz from Novartis, while the only other listing was a result of a de-SPAC transaction (R&S Group, see below). Putting these transactions aside, the volume of traditional IPOs in 2023 and 2022 was significantly lower than in 2021, which had been considered a peak year.

Nevertheless, SIX Swiss Exchange was one of the most active exchanges in Europe in 2022 and 2023 due to the new "China-Switzerland Stock Connect" programme that was launched in 2022, enabling Chinese companies to access the Swiss capital markets through a secondary listing (and vice versa). Under this programme, eight (2023), respectively nine (2022), Chinese issuers listed global depository receipts ("GDRs") with a total transaction size of approximately USD 2.4 billion (2023) and USD 3.2 billion (2022) on SIX Swiss Exchange, the largest to date being Jiangsu Eastern Shenghong Co., Ltd. (transaction size of USD 718.3 million, 2022).

Furthermore, since November 2021, the listing of special purpose acquisition companies ("SPACs") is permitted at SIX Swiss Exchange, providing an alternative to an IPO in Switzerland. Internationally, the market for SPACs reached its climax in 2021 and has since declined; the listing of SPACs in Switzerland follows the same trend. VT5 Acquisition Company AG was listed as the first (and only) SPAC on SIX Swiss Exchange in December 2021 and conducted a de-SPAC transaction with R&S Group in December 2023.

Further, since October 2021, a company may be listed on SIX Swiss Exchange in the "Sparks" segment specifically designed for small and mid-sized companies. This segment facilitates the listing and trading of such companies, giving them the opportunity to improve their financing options and to access a broader investor base. Since its introduction, one company (Xlife Sciences AG, 2022) has been listed in this segment.

The IPO process: Steps, timing, parties and market practice

The IPO process is largely driven by the characteristics of the IPO candidate itself and by the envisaged IPO structure (primary vs secondary offering, particularities such as a complex financial history). In general, four key phases can be distinguished:

• Phase I: Preparation (approximately four to six months prior to the first day of trading) The shareholders and the issuer, together with their advisors, set up the structure, make strategic decisions for the offering, and implement the IPO-readiness of the issuer:
  • Selection of advisors: The issuer chooses its advisors, including, in particular, the underwriting banks, the legal advisors to the issuer and the underwriters, the auditors, and often a pre-IPO advisor. In larger IPOs offered internationally, the issuer and the underwriters are each advised not only by Swiss counsel but also by international counsel advising as to U.S. securities laws to enable resales into the U.S. market under a Rule 144A offering in particular. Depending on the IPO structure, a selling shareholder might also engage separate counsel. Often, the issuer appoints further advisors, such as a specialised PR firm.
  • Structuring: The underwriting banks and legal advisors advise the issuer and its current shareholders on the structuring and, in particular, whether it should be structured as a primary offering (sale of newly created shares) or secondary offering (sale of existing shares only), or a combination of both. They also advise on the listing venue and the review body to be chosen. In case of a foreign issuer, the structuring involves the decision as to whether the issuer should list its shares on SIX Swiss Exchange as a foreign issuer or whether it should migrate to Switzerland for the IPO. This decision is typically driven by marketing and/or tax considerations. Structuring may also include the reorganisation of a group, e.g., the establishment of a holding company.
  • Development of equity story: Together with the issuer, the underwriters develop an equity story to market the shares. A key element is the confidential meetings between the issuer and potential investors to test the waters (so-called "pilot fishing" or "early-look meetings"). In case the issuer has publicly traded debt outstanding (in particular, high-yield bonds), these meetings must comply with the relevant requirements regarding disclosure of price-relevant information; in particular, under the European Market Abuse Regulation ("MAR"), if the bonds are traded at an EU venue. The development of the equity story leads to the issuer presenting itself to the underwriters' analysts, following which the analysts prepare and publish research reports for the investors to attract their attention. These reports are key elements of the marketing strategy.
  • Corporate governance: One of the main tasks of the issuer's Swiss legal counsel is advising the issuer on its corporate governance set-up and preparing the necessary corporate documentation. If the issuer has issued several classes of shares, any preferred share classes will typically be converted into common shares prior to listing, as different share classes may adversely impact the liquidity of the listed shares and be viewed negatively under good corporate governance standards. Other corporate governance measures include the adoption of mandatory Swiss "say-on-pay" rules ("SOP Rules") (see below) and amending the constitutional documents to ensure compliance with applicable Swiss law, as well as best practice for public companies. Existing shareholders often appoint new members to the board of directors as of the first day of trading. It is advisable to give due consideration to the recent guidelines published by the prominent proxy advisors and the Swiss standards for corporate governance, which recommend a sufficient number of independent board members. Under certain circumstances, issuers may also consider increasing the threshold for mandatory takeover bids from 33⅓% to 49% (opting up), or completely opting out of the mandatory takeover regime, which, however, is typically perceived negatively by investors.
  • Financial statements: The issuer works closely with the auditors for the preparation and audit of its financial statements. Generally, a listing on SIX Swiss Exchange requires a three-year track record evidenced by audited financial statements drawn up in accordance with one of the eligible accounting standards (see below), unless an exemption is granted. In certain situations, the preparation of pro forma financial statements becomes necessary and, in this case, the preparation of the financial statements should be initiated as early in the process as possible.
  • Due diligence and prospectus: The underwriters, legal advisors and auditors conduct a detailed due diligence (business, legal and audit, respectively) about the issuer. Based on the outcome of this due diligence and the equity story, the issuer's legal counsel drafts the prospectus. The disclosure must comply with the requirements set forth in the Swiss Financial Services Act ("FinSA") and its implementing ordinance (the Swiss Financial Services Ordinance ("FinSO")), which are similar to EU standards. A Swiss prospectus should mainly include a summary, a description of the risk factors, information on the use of proceeds, about dividends/dividend policy, the issuer (such as members of the board of directors and executive management, the issuer's material business activities and prospects, investments and share capital, as well as capitalisation and indebtedness), the securities and the issuer's major shareholders, as well as information about the offering and the financial statements. Even though neither SIX Swiss Exchange nor the FinSA/FinSO require a management discussion and analysis ("MD&A") section, it is standard to include such section in an equity prospectus.
  • Underwriting agreement: The Swiss underwriters' counsel drafts the underwriting agreement. The agreement contains the main duties and rights of the underwriters and the issuer. It is market practice that the underwriters commit to a "soft underwriting", i.e., they only commit to purchasing the shares upon pricing. The Swiss underwriters' counsel prepares ancillary agreements and documents, such as a share lending agreement for the over-allotment option (see below), the agreement among managers, and the lock-up undertakings. Major shareholders as well as directors and managers of the issuer typically sign lock-up undertakings confirming they will not sell their shares in the first months following the IPO.
  • Review of prospectus: The IPO prospectus must be filed with and reviewed by a review body for completeness, consistency and comprehensibility. Pursuant to the FinSA, the filing must be made at least 20 calendar days prior to publication. However, the IPO timetable should allow for sufficient time to implement comments received from the review body and to refile the prospectus.
  • Listing formalities: The issuer is obliged to appoint a listing agent, which, in general, must be a bank within the meaning set out in the Swiss Banking Act or a securities firm within the meaning set out in the Swiss Financial Institutions Act, or have a corresponding authorisation in accordance with the law of the jurisdiction of its registered office. The listing agent is responsible for submitting the listing application, which must be filed with SIX Exchange Regulation 10 trading days prior to the start of the bookbuilding.
• Phase II: ITF and marketing (approximately four weeks)
  • Intention to float: This phase is initiated by the issuer publishing an intention to float ("ITF"). The issuer's executive team and the underwriters market the issuer. The ITF does not yet contain detailed information about the IPO but is meant to draw the attention of the market to, and create momentum for, the upcoming IPO. Research reports prepared by analysts are distributed shortly after publication of the ITF.
  • Roadshow and bookbuilding: If the IPO gains sufficient momentum, the issuer ultimately signs the underwriting agreement with the banking syndicate and publishes the prospectus. This marks the formal "launch" of the IPO and is followed by a bookbuilding phase, during which the issuer's executive management markets the issuer on a roadshow with the support of the underwriters. This leads to investors placing orders for the shares within the price range indicated in the prospectus. At the end of the roadshow, i.e., the end of the bookbuilding period, the underwriters evaluate at what price the shares may be placed with the investors.
• Phase III: Execution
  • Allocation: After the roadshow/bookbuilding, the underwriters calculate at what price all offered shares may be sold and, together with the issuer, allocate them to investors in accordance with their bids. The issuer and the underwriters execute a supplement to the underwriting agreement, which sets out the final offer price of the shares and obliges the underwriters to purchase these shares and sell them to the investors. In addition, the issuer publishes a pricing supplement to the prospectus, informing the market about the final issue price and volume of the offered shares. The pricing supplement does not need to be filed with the review body.
  • Capital increase: In case of a primary offering, the issuer conducts a capital increase (typically immediately prior to the first day of trading).
  • First day of trading: The start of the trading is the test for the issuer and the underwriters, as they see for the first time how the issuer's shares are traded.
  • Settlement: The closing of the IPO occurs a few trading days after the first day of trading.
• Phase IV: Stabilisation (the first 30 days after the listing)

After the first day of trading, one of the underwriters acts as a stabilisation agent. When placing shares in the bookbuilding, the underwriters typically sell more shares to investors than they purchase from the issuer and/or the selling shareholder (typically 15% of the base size) so that these shares can be used to stabilise the market price during the first days of trading. Initially, the additional shares are not purchased from the issuer or a selling shareholder, but are lent under a share lending arrangement.

Whether or not the over-allotment option ("greenshoe") is exercised depends on the development of the share price:

• If the share price is not doing well, the stabilisation agent purchases shares in the market to stabilise the price. These shares are then returned to the lending shareholder(s).
• If the stock is trading well, the stabilisation agent does not interfere in the market activity and ultimately either purchases the shares from the lending shareholder(s) or from the issuer (which are created in (another) capital increase) and returns these to the respective share lenders.

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Originally published by Global Legal Insights

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