Marked restraint on the Swiss M&A market

Marked restraint on the Swiss M&A market

The caution seen on the Swiss M&A market in 2015 has continued in the first quarter of this year. This can be attributed to a weak stock market at the turn of the year and the doubts this triggered as well as to a persistently strong Swiss franc. At just 59, the number of deals has almost halved compared to the same quarter last year. By contrast, the Syngenta takeover has pushed transaction volume up by two-thirds. The M&A market is expected to remain restrained and unsettled in 2016.

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Compared with the first quarter of 2015, the number of mergers and acquisitions fell by 45% to 59 announced transactions with Swiss involvement, with a mere six out of the ten largest transactions passing the USD 500 million threshold in Q1 2016. This contrasts with the corresponding quarter of the previous year, when every single one of the ten largest deals was worth over USD 780 million.

However, transaction volume rose significantly with the announcement of the China National Chemical Corporation’s takeover of Syngenta: At USD 52.1 billion, the volume of all transactions with Swiss involvement was 66% higher in Q1 2016 than in Q1 2015 (USD 31.4 billion). The Syngenta deal is unique in that, at USD 40 billion, its total value even topped the large-scale transaction in 2012 between Glencore and Xstrata as well as the LafargeHolcim merger from 2014.

Brisk activity was restricted to a handful of industries in the first quarter of this year. The standout performer worldwide was the technology, media and telecommunications (TMT) sector, which has been out in front in terms of traded volume since 2000. However, this trend is not evident to the same extent in Switzerland, which announced only ten transactions in this sector for Q1 2016, some 17% of the total volume.

Syngenta takeover the largest-ever Swiss M&A deal

Far and away the biggest transaction announced in Q1 2016 was the acquisition of Syngenta by the China National Chemical Corporation (ChemChina) mentioned above. Worth USD 45.9 billion, the takeover now tops the list of mega-deals with Swiss involvement.

The announcement by BTG Pactual of its plan to sell BSI to EFG International is set to open a new chapter in the transformation of the Swiss financial industry. The merger, the third-largest deal of Q1 2016, will allow BSI and EFG International to exploit economies of scale in private banking and asset management in particular and will elevate the ‘new bank’ to one of the top five asset managers in Switzerland. BTG Pactual is to pocket some CHF 1 billion from the transaction, while retaining a 20-30% stake in the newly merged financial service provider.

Another noteworthy deal was the takeover bid for Kuoni Travel Holding launched by Swedish private equity firm EQT: Worth around USD 1.4 billion, this sale follows hot on the heels of two other Kuoni transactions from 2015 – the sale of its European travel agency business to Germany’s Rewe Group and the sale of its Indian and Chinese tour operating activities to the Canadian investment holding company Fairfax Financial, which also owns travel company Thomas Cook India.

Top Swiss M&A transactions from January to March 2016

Uncertainty set to dominate proceedings

The impact of the Swiss National Bank’s decision to scrap its currency floor against the euro remains keenly felt, with price distortion triggered by the persistently strong Swiss franc continuing to plague tourism, industry and retail especially. The considerable pressure being placed on these sectors to change and adapt will mean further structural adjustments and will also lead to consolidation measures, sales and acquisitions.

The upheaval, particularly on the Chinese stock market, has sparked major uncertainty worldwide and has also impacted on other trading venues, while constant reports of planned job cuts in various industries are further unsettling market participants. The Swiss M&A market thus looks set to share this volatility in 2016, potentially to an even greater extent than its global counterpart. This could see many market players employ even greater caution in this country than they do for global transactions.

Nevertheless, we can expect a few interesting and sizable deals, which will boost total transaction volume. Overall, however, the prevailing conditions will mean the Swiss transaction landscape remains turbulent in 2016.

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