Swiss M&A market volatile - Brexit prompts uncertainties

Swiss M&A market volatile: Brexit prompts uncertainties

Following on the heels of a restrained first quarter, the Swiss M&A market picked up slightly during the second quarter of 2016. While the 164 deals conducted during the first six months of the year might have been down slightly (-9%) on the first half of 2015, the announced takeover of Syngenta gave the total value of the deals (USD 74.2 billion) a considerable boost. A certain amount of restraint can be expected to carry over into the second half of 2016 due to political and economic uncertainties, in part as a result of Brexit.

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There were 164 M&A deals with Swiss involvement during the first half of 2016, 9% fewer than during the same period of 2015. Compared to the first quarter of 2016, which was still dominated by greater restraint on the part of investors, the number of deals conducted during the second quarter rose considerably by 38%. There was also sharp growth in the size of the deals in the second quarter: After the total value of deals was nearly exclusively driven by China National Chemical Corporation's announced takeover of Syngenta in the first quarter of 2016, the second quarter brought a marked increase in the value of the quarter's ten largest deals. The value was up 94% over the first half of 2015.

So far a high level of activity has been observed across all industries in 2016, with investments more intense in industrial and consumer goods companies. Particularly noteworthy is the USD 1.15 billion acquisition of Britain's electronics wholesaler Permier Farnell by Dätwyler, a supplier of industrial parts. This deal was concluded prior to Brexit. Among the top 10 high-value deals are also two from the financial services sector: BTG Pactual announced its plan to sell BSI to EFG International for around USD 1.0 billion and Credit Suisse sold off a credit portfolio worth USD 1.27 billion to private market investor TSSP. In another deal, the Partners Group re-divested the USD 7.5 billion interest in MultiPlan which it had purchased in 2014.

Chinese appetite for investments

While the Chinese stock market might have prompted a great deal of uncertainty at the start of the year and the country's 6.9% growth rate is at a 25-year low, China is and will remain one of the world's most dynamic economic regions and also boasts an M&A market that is equally active. China National Chemical Corporation's (ChemChina) takeover bid for Syngenta is symbolic of Chinese enterprises' current appetite for investments outside their country's borders. This announced takeover has been the largest deal by far this year.

The acquisition of Gategroup by China's HNA Group for USD 1.9 billion puts yet another major transaction on the list of the ten largest Swiss M&A deals during the first half of 2016, thus confirming that the activities of Chinese investors are on the rise. After Syngenta and Sigg, Gategroup is the third notable company to have received a takeover bid from China during the first six months of 2016.

M&A activities hampered by uncertainties

The Brexit referendum slowed M&A activities down in Europe during the weeks prior to the vote – especially with regard to possible deals with British involvement. In light of the fact that some buyers even protected themselves against the direct consequences of the United Kingdom's withdrawal from the EU, this could now lead to renegotiations or deals being called off. Uncertainty regarding the repercussions of a Brexit have had a noticeable impact on European financial markets in the past few months and will continue to effect these in the weeks to come, as well.

Apart from political factors, the strong Swiss franc and the cheap capital freed up as a result, strategic objectives are a crucial factor for acquisitions. Some drivers of M&A activities include geographic differentiation, pressure to expand operations and efforts to strengthen a company's own position in the market.

Summing up the current situation, Patrik Kerler, Head of M&A at KPMG Switzerland, says, “On the whole and under the prevailing conditions, the Swiss M&A business will continue to follow an unsteady path in 2016. Compared to the first quarter of 2016, however, we expect another slight upturn in M&A activities.”

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© 2016 KPMG Holding AG is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.

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