Overview
Overview of M&A activity in 2023
The year 2023 started with a cautious M&A market in Switzerland due to global recession fears and rising interest rates. Deal activity notably shifted towards mid-market transactions, as companies prioritised strategic acquisitions and the optimisation of their portfolios, with an emphasis on transformation, digitalisation and sustainability. This strategy mirrored a cautious yet forward-thinking approach, considering the geopolitical and economic challenges as well as rising energy prices.
Although deal volume dropped compared to 2022, the Swiss M&A market demonstrated its resilience in 2023. By the end of the year, Swiss entities (as targets, acquirers or divestors) were involved in 537 transactions, with a total deal value of USD 50 billion (deals with known values as per Mergermarket). This represented a decline compared to 2022, which saw 616 transactions and a total deal value of USD 60 billion (deals with known values as per Mergermarket).
Market environment
The Swiss M&A market in 2023 was characterised by a shift towards mid-market deals, driven by strategic development and a focus on alternative funding and value creation. This trend was a departure from the large, eye-catching megadeals of previous years, which had declined since their peak in 2021. Instead, companies pursued growth through strategic acquisitions and selective divestitures, positioning their portfolios for future success. However, 2023 still saw still some big public and private deals, demonstrating the continued vitality and dynamism of the market, namely the merger between Credit Suisse and UBS, which marked a significant event in the Swiss banking industry with a deal volume of USD 3.4 billion, or the purchase of the Swiss business of Zur Rose Group by Medbase.
The most active sectors in descending order were industrial markets (105 deals), technology (96 deals) and healthcare (73 deals). Private equity investors were involved in 133 deals that took place in Switzerland in 2023. There was a decrease in transaction volume with Private Equity involvement in Swiss deals compared to the record years of 2021 and 2022.
In 2023, 238 foreign companies were bought by Swiss purchasers (in 2022: 260), 143 Swiss companies were bought by foreign acquirers (in 2022: 149) and 107 deals were domestic transactions (Switzerland/Switzerland; in 2022: 137).
Statutory and regulatory M&A framework in Switzerland
The regulatory environment in Switzerland to date continues to be investor-friendly for the following three main reasons: limited investment restrictions (a notable exception being the Federal Law on Acquisition of Real Estate (the so-called Lex Koller), as well as the draft bill of the Investment Screening Act; see below); vast flexibility of the parties in the asset or share purchase agreement (e.g., with regard to the R&W, indemnities, disclosure concept, cap, etc.); and low bureaucracy. Below, please find a brief overview of regulations that may be relevant:
Regulatory process: Public takeovers by way of cash or exchange offers (or a combination thereof) are governed by the Financial Markets Infrastructure Act (FMIA). Within this framework, the SIX Swiss Exchange (SIX) is responsible for issuing regulations regarding the admission of securities to listing as well as the continued fulfilment of the listing requirements. The Swiss Takeover Board (TOB) is responsible for ensuring the compliance of market participants with the Swiss takeover regime. Decisions of the TOB may be challenged before the FINMA and, finally, the Swiss Federal Administrative Court.
If a transaction exceeds a certain turnover threshold (turnover thresholds are rather high compared to other European countries: (a) the undertakings concerned together report a turnover of at least CHF 2 billion, or a turnover in Switzerland of at least CHF 500 million; and (b) at least two of the undertakings concerned each report a turnover in Switzerland of at least CHF 100 million) or if a restructuring has an effect on the Swiss market, the regulations of the Federal Act on Cartels and other Restraints of Competition must also be considered.
Any planned combination of businesses must be notified to the Competition Commission (ComCo) before closing of the transaction in case (a) certain thresholds regarding the involved parties' turnovers are met, or (b) one of the involved parties is dominant in a Swiss market and the concentration concerns that market, an adjacent market or a market that is up- or downstream thereof. The ComCo may prohibit a concentration or authorise it only under certain conditions and obligations. The ComCo's decision may be challenged before the Swiss Federal Administrative Court and, finally, before the Swiss Supreme Court.
The Financial Services Act (FinSA) primarily addresses the financial services industry and has, in particular, become relevant in the context of certain M&A transactions, as it sets out rules regarding the duty to publish an issuance prospectus in the case of a public offering of securities. It specifies the required content of prospectuses, bringing the requirements in line with international standards and those already applied by the SIX Swiss Exchange for listing prospectuses and replacing the outdated rules of the Swiss Code of Obligations, which only required very limited disclosure. If, in the context of a public tender offer, securities are offered as consideration, this constitutes a public offering under the FinSA and generally requires the offeror to publish a FinSA-compliant prospectus.
Investment restrictions: Foreign buyers (i.e., foreigners, foreign corporations or Swiss corporations controlled by foreigners) must consider the Federal Law on Acquisition of Real Estate in Switzerland by Non-Residents (the so-called Lex Koller). They must obtain a special permit from cantonal authorities in order to purchase real property or shares in companies or businesses owning real property, unless the property is used as a permanent business establishment.
In December 2023, the Swiss Federal Council published a draft bill for the Investment Screening Act. The proposed legislation aims to prevent foreign takeovers of Swiss companies that could threaten public order or security, particularly when such takeovers involve entities active in critical industries and are by foreign state-controlled investors. However, it is expected to have a limited impact due to its narrow scope, which is focused on takeovers by foreign state-controlled investors in specific sectors such as defence, electricity, health and telecommunications. Such a bill would represent a significant shift from Switzerland's traditionally investor-friendly regulatory landscape and it is not yet clear whether and when it will enter into force.
Significant deals and highlights
Among the 537 deals with Swiss involvement, few stand out because of their size and historical meaning. The 10 biggest deals account for USD 37 billion (in 2022: USD 40 billion).
The Swiss banking landscape witnessed a historic consolidation with the merger of two of its largest banks, Credit Suisse and UBS in March 2023. The acquisition of Credit Suisse Group AG by UBS Group AG was legally completed on 12 June 2023 with a value of USD 3.4 billion.
In May 2023, the biopharmaceutical industry saw a significant acquisition with Ironwood Pharmaceuticals entering into a definitive agreement to acquire Switzerland-based drug developer VectivBio. The acquisition was valued USD 1 billion and was completed in December 2023.
Compared to last year, the number of IPOs in Switzerland has slightly decreased from 14 to 10, which is in line with the global trend. Noteworthy highlights showcasing the attractiveness of the Swiss financial marketplace include the IPO of Sandoz, which went public as a spinoff of Novartis with a market capitalisation of USD 10.4 billion, and the listings of Will Semiconductor Co., Ltd. and Supcon Technology on the SIX via Global Depository Receipts (GDRs), with a volume of approx. USD 445 million and USD 566 million. The 10 additions that were reported on SIX in 2023 had an aggregated value of over USD 13 billion.
Key developments
The key development for 2023 was the entering into force of the new Swiss corporate law on 1 January 2023. Although the impact of those changes on the M&A market cannot yet be analysed, we expect the new corporate law to generally have a positive effect. Key changes include, inter alia, the following:
Share capital: The share capital of Swiss stock corporations no longer has to be denominated in CHF, but can now alternatively be in EUR, USD, GBP or JPY – provided that the respective currency is the functional currency of the business and the reporting currency used in the financial statements (art. 621 CO). While it is already possible today to prepare financial statements in a currency other than CHF, the amount of distributable equity still needs to be determined in CHF as well. Aligning the share capital with the reporting currency avoids foreign exchange discrepancies. The share capital currency can be changed as of the beginning of a financial year by amending the company's articles of association.
Incorporation and capital increases: Under the old law, companies could create authorised capital, empowering the board of directors to issue shares out of such authorised capital during a maximum period of two years. The authorised capital has been replaced by the concept of a "capital band" (art. 653s et seq. CO): the shareholders' meeting can, by amending the articles, authorise the board to increase and/or reduce the share capital within a predefined bandwidth of up to 50% of the share capital up- and downwards during a maximum period of five years. Apart from the useful time extension, the capital band essentially follows the rules of authorised capital. It should be noted that it is still possible to create contingent capital for the issuance of shares upon exercise of stock options and convertible bonds. From a tax perspective, the capital band has the benefit that the 1% Swiss stamp duty payable on capital contributions is only due on the net increased amount at the expiry of the capital band. Under the old law, if a company was incorporated or increased its capital and it was intended that the company will acquire assets from a shareholder or a close person, the intended acquisition, including the purchase price, had to be disclosed in the articles and an auditor had to confirm that the price was justifiable. These rules regarding the intended acquisition in kind (beabsichtigte Sachübernahme) have been abolished, making incorporations and capital increases faster and more cost-efficient.
Interim dividends: Already under the old law, legal doctrine considered it permissible for a company to disburse interim dividends, i.e., dividends out of earnings of the current financial year, based on an interim balance sheet. However, audit firms were reluctant to provide the required certificate for such interim dividends. New art. 675a CO positively confirms that such interim dividends are permitted.
Shareholders' resolutions: While shareholders' meetings have always had to be held as physical meetings (absent COVID-relief), the reform introduces flexibility by offering a number of additional ways to hold such shareholders' meetings (art. 701 et seq. CO) (i.e., normal physical meeting (unchanged), physical meeting concurrently at several locations with electronic transmission between such locations, physical meeting with remote participants exercising their (voting) rights electronically, entirely virtual meeting, circular (i.e., written) resolution in wet ink or electronic form).
Delisting equity security: In addition, under the new law, the shareholders' meeting is now explicitly responsible for delisting the equity securities of listed companies (art. 698 para. 2 no. 8 CO). The resolution of the shareholders' meeting on the delisting requires a qualified majority and thus the approval of at least two-thirds of the votes represented and the majority of the par value of the shares represented (art. 704 para. 1 no. 12 CO).
Board resolutions: The reform eliminates uncertainties around the question of if/how electronic board resolutions are permitted by clearly listing the options to hold board meetings and pass resolutions (art. 713 CO) (i.e., normal physical meetings (unchanged), physical meetings with remote members exercising their (voting) rights electronically, entirely virtual meetings, circular (i.e., written) resolutions in wet ink or electronic form (e-mail, etc.), unless a board member requests oral discussion.
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Originally published in Global Legal Insights
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