Strong Revival of Swiss M&A Market in June

Zurich, 14 Sep, 2023, Dr. Winfried Weigel

Swiss M&A-Market update 2023 (figures updated as of 6 Sep 2023)

We counted close to 300 Swiss M&A transactions with a cumulative deal value (DV) of almost CHF 69.9 billion in the H1/2023, based on 56 deals with disclosed deal values. This is CHF 10 bn less than in H1/2023 with 71 deals and an aggregated deal value of CHF 79.7 bn.

However, the figures for H1/2023 are substantially higher than the H2/2022 figures with 55 deals with a disclosed deal value and an aggregated deal value of just CHF 28.9 bn.

Glencore was the clear No. 1 Swiss market participant in 2023 so far with the two largest deals, one CHF 29.3 bn takeover offer in Canada and together with two financial investors a CHF 15.6 bn divestiture in the Netherlands. The two deals together account for >64% of the aggregated Swiss M&A deal value in H1/2023. The CAD 40.2 billion public takeover offer from Glencore to the shareholders of Canadian competitor Tech Resources Ltd. against issuing new shares has so far been rejected by the target`s management. Glencore shareholders would suffer a dilution of their shareholding of 24% with the takeover. In addition, Glencore would pay the equivalent of CHF 8.2 billion in cash. For comparison, the largest transaction in 2022 was CHF 18.7 billion.

The top 10 Swiss M&A deals 2023 YTD are billion CHF deals and we did not see any further billion CHF M&A deal since then. We only saw one PE deal in the top ten on 5th place: the challenged CHF 2.9bn public takeover offer by Bain Capital for Software One announced on 15 June and increased to CHF 3.3bn in July. 5 of the top 7 deals were announced in June.

July and August and the first week of September have been a rather quiet summer season with an aggregated deal value of just CHF 8bn from 20 deals with disclosed deal values and 76 deals overall, including non-M&A transactions such as? a CHF 2.4 billion pharma product rights acquisition by Roche in the US, 90% thereof payable as earn-outs, and CHF 1.5 billion worth of financial minority stakes by institutional investors.

Domestic Swiss M&A market still weakening

The domestic Swiss M&A market (“domestic M&A”, i.e. Swiss buyer and Swiss target company) has been particularly weak so far this year with a total of 50 deals, of which only 5 (!) deals had a published deal value, thereof 4 in Q1/2023, with an aggregated deal value of just CHF 4.5bn. Thereof, CHF 3.2bn is attributable to the “friendly” takeover of Credit Suisse by UBS for new UBS shares, which was announced on March 19, 2023 with a valuation of CHF 3 billion and was worth CHF 3.2bn at closing on June 12, 2023. Negative Goodwill lead to an extraordinary CHF 29 billion profit for UBS in Q2. The second largest transaction in central Switzerland was the takeover of the electronics company Schurter AG by the Swiss PE investor Capvis for CHF 511 million on rank 15.

In total, we identified 50 Swiss domestic M&A deals in H1/2023, of which only 17 were announced in Q2. The approx. 50 deals without a disclosed deal value include some well-known names and buyers such as Swisscom, Swiss Post, Burkhalter, Siegfried AG and SHL Medical AG, and of course some PE investors. Nevertheless, these transactions are likely to be only in the double-digit or even single-digit million CHF range, so the cumulative transaction value would still be moderate.

Foreign Inbound Swiss M&A business was more active

The market for foreign takeovers in Switzerland was significantly stronger with a total of CHF 7.3 billion and 88 acquisitions and picked up noticeably in Q2/2023. We only counted 14 deals with deal values disclosed, seven each in Q1 and in Q2 but Q2 accounted for CHF 6.7 billion aggregated transaction value, but showed slightly fewer transactions compared to Q1. The largest inbound deal was the announced takeover of Software One AG by the PE investor Bain Capital for USD 3.25bn, the second largest the CHF 2.4bn eye care divestiture by Novartis and the third largest the USD 1.2bn acquisition of VectivBio Holding by Ironwood Pharma from the USA.

The total volume of the M&A market in Switzerland (Swiss target companies / deals in CH) by mid 2023 was 138 deals and an aggregated deal value of CHF 11.6 billion. Foreign acquisition activity in Switzerland was substantially picking up in May and June with an aggregated deal value of CHF 6.7bn based on six transactions with disclosed deal value and a total of 41 deals.

Swiss acquisitions abroad and a few divestitures

Usually, the larger part of the total Swiss M&A market is comprised of acquisitions and divestitures of Swiss players abroad. For H1/2023 we were able to identify 153 acquisitions by Swiss investors (buyers or sellers), of which 34 (22.22%) had a disclosed transaction value of aggregated CHF 58.2bn, a significant increase compared to a total value of just CHF 54bn for the full year 2022. Of course, half of it is attributable to the deal 2023 YTD that is still in the offer phase: the CAD 40bn (CHF 29.3bn) takeover offer to the shareholders of Tech Resources Ltd. in Canada launched in April 2023. Five of the top seven deals in H1/2023 were announced in June. The second largest Swiss M&A deal 2023YTD was the CHF 15.6bn divestiture of the Netherlands based distributor of agricultural commodities, Viterra Ltd., to its listed US competitor Bunge Ltd., in a combined cash and share transaction by Swiss Glencore Ltd. (50%) and two intern. financial investors (together 50%), that was announced on 13 June. The consideration is USD8.2bn, which consists of $2bn paid in cash and $6.2bn paid in common shares of Bunge and the assumption of net debt of $9.1bn. Five of the top nine deals in H1/2023 were strategic acquisitions by Swiss corporates abroad: the largest ones beside the Glencore public tender offer are the USD 3.5bn public takeover of Chinook Therapeutics, a pharmaceutical development company for kidney diseases in the USA, by Novartis, and the €2.1bn acquisition of a Finnish competitor in the plastic pipe business, Uponor Oyj, by Georg Fischer AG, both announced on June 12, 2023. Vitol with a CHF 1.8bn acquisition in South Africa and Holcim with a CHF 1.2bn acquisition in the USA are the next biggest foreign corporate acquisitions. The biggest Swiss corporate divestiture besides the Glencore exit was the sale of the Novartis eyecare business to the Canadian specialist Bausch & Lomb Corp. that contributed USD 2.5bn to the league table.

The most active Swiss foreign investors in Q3/2023 so far are Novartis with two acquisitions, Nestle and again Glencore, all transactions below a deal value of CHF 1bn.

Higher transaction value in Q2

Overall, more than 90% of the aggregated transaction value of the Swiss foreign M&A market is accounted for in Q2/2023, although with fewer deals than in Q1. Seven out of the top10 Swiss M&A deals were announced in Q2/2023, including the only two double digit billion CHF deals. This is a strong sign for a rebound of M&A activity in Fall.

No Swiss divestitures abroad in the first five months of the year

Interestingly, we have not yet been able to detect any foreign divestitures by Swiss companies in H1/2023 during our first analysis at the beginning of July, which is rather unusual. In 2022 we had 33 Swiss company sales abroad with a cumulative transaction value of CHF 24.5 billion, and in 2021 we had 28 transactions worth CHF 22.5 billion. In our updated analysis for H1/2023 we now count four Swiss divestitures with deal values disclosed in the second half of June, with an aggregated deal value of CHF 16.7bn of which CHF 15.6bn are contributed by the Glencore agritech divestiture in the US. Apparently, Swiss companies and PE investors were shying away from divestitures in a difficult market environment, especially abroad. Either the sellers' price expectations are too high or the potential sellers are counting on a recovery in the markets and thus in valuations. Even in Switzerland, we were only able to find six Swiss strategic sellers and no Swiss PE investors among the deals with published transaction values.

Lower valuations based on key valuation parameters

Since the Swiss Franc has gained massively against the US-Dollar and the Euro in 2023 and the valuations declined due to the further rise in interest rates, even if growth rates remained unchanged (which is not the case), the achievable valuations may currently speak against divestitures, especially if there is no clear strategic rationale for a divestiture. This could change in H2/2023 due to the strong resistance of the stock markets so far this year.

Table 1: Top15 Swiss M&A Deals H1/2023, by corporates and PEs, by quarter

The table provides an overview of the 15 largest Swiss M&A transactions in Q1+Q2/2023, differentiating according to strategic and private equity investors or sellers and to the publication date. The top 15 deals have an aggregated deal value of CHF 65.8 billion and represent 94% of the Swiss total value. Ten out of 15 transactions with an aggregated deal value of CHF 58.4bn (together 83.5% of the value) were announced in Q2/2023. PE investors were only involved in six of the top 15 transactions, two of which were on both the buyer and seller side (so-called secondary PE deals). The share of these six transactions was only CHF 6.6bn or 9.4% of the transaction value of the top 15 transactions, a long-term low for PE transactions. Among the top30 Swiss M&A deals there are only eight deals with PE participation. So far, compared to previous years, one can speak of a very weak Swiss M&A year for the PE industry.

Two announced deals disappeared / have been withdrawn

Two deals from our Q1 M&A report reported in April have now disappeared from the league tables, the largest sale of a Swiss company reported at the time, the sale of the Sika Admixtures business to the British INEOS Group for CHF 750 million and the originally agreed CHF 161 million Credit Suisse takesover of the American investment bank boutique Klein and Company. After being taking over itself, Credit Suisse had to withdraw from the deal. The SIKA-INEOS deal was not approved by the competition authorities. Instead, SIKA AG sold the relevant parts of the Admixtures business from the takeover of the MBCC Group announced in 2022 to the PE investor Cinven in order to fulfill the competition conditions for the MBCC Group takeover. A transaction value was not published.

Higher M&A figures in deal databases and other M&A reports

Most market leading transaction databases report a higher number of transactions and a higher aggregated deal value, however, based on a less strict definition of M&A transactions and under exclusion of a proper deal-by-deal analysis and categorization. Among other things, we excluded 11 transactions, 7 of which had a transaction value and a cumulative transaction value of CHF 1.6 bn, because they do not qualify as a M&A transactions, but are rather other asset deals, mostly the purchase of real estate or renewable energy farms, but also loan portfolios or product rights. E.g., the CHF 2.4bn product rights acquisition by Roche announced in July, might not be included in our 2023 Yearend M&A analysis. The excluded Swiss transactions include four divestitures in Switzerland and nine foreign acquisitions. We also excluded four PIPE (private investments into public equity) transactions, three of which were in Switzerland, and 12 acquisitions of financial minority stakes with a total value of CHF 1bn, five of which were domestic Swiss deals and six were foreign investments.

Inflation of funding rounds of start-ups and scale-ups in the M&A database

In total, we also excluded 31 Swiss financing rounds, 24 of which had a cumulative transaction value of CHF 1.65bn, the largest of which was a USD 1 billion private placement by Galderma Holding, the former Nestle dermatology activity, which is being traded as a possible IPO candidate. We also excluded 90 foreign financing rounds with supposed participation from Swiss investors, 81 of which stated transaction values and a cumulative transaction value of CHF 3.8bn.

In addition, 207 foreign transactions with an aggregated deal value of CHF 27.1 billion had to be excluded because we could not determine any connection to a Swiss buyer or seller. Based on a case-by-case examination of these transactions, it was not clear why they were included in the results when searching for Swiss target companies or Swiss buyers or sellers?

Conclusion

Q2/2023 shows a clear upward trend compared to a very weak Q1, albeit at still subdued levels. Private equity investors in particular are holding back on both new platform investments and divestitures. In the first half of the year there were only ten so-called billion-CHF-deals (minimum CHF 1 billion transaction value) and only two mega transaction larger than CHF 10 billion, which significantly increased the cumulative transaction value. In April 2023 we spoke of one of the slowest starts to a new year in the last ten years. This certainly also applied to our initial analysis of the first half of 2023, but with the revised June data we see a clear upward movement in Q2, despite an extensive summer break in July and August.

Nevertheless, despite interest rates continuing to rise, we have very stable stock markets close to the historic highs of many stock indices, inflation easing but still at too high a level, energy prices that are still relatively high, fewer discussions about a possible recession, high employment with a loss of purchasing power, high corporate profits and dividends, but still an ongoing war in Europe and accelerating climate change, thus high uncertainty despite stable securities markets. The banking crisis that flared up in the spring appears to be largely under control, although the depreciation problem remains acute in both the securities sector, the credit sector and the real estate market.

Further development is therefore difficult to predict, but growth is crucial for company success and especially company valuations, and external growth is easier and quicker to achieve than organic growth. With relatively stable capital markets, a further significant recovery in the still weak M&A market can be expected, certainly with opportunities at lower valuations.

In case of questions or comments please do not hesitate to contact me.

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Dr. Winfried Weigel????? [email protected] ????? +41 76 443 2001