The Swiss M&A market has remained unvaryingly brisk over the past six months. Transaction volume saw a year-on-year decline of 7%, with the number of deals keeping more or less consistent at a high level. The M&A year to date has been dominated by one major transaction, Chinese buyers and private equity investors.
The number of transactions (160) reported during the first half of 2017 fell only marginally compared to the same period of the previous year (164). At USD 69.3 billion, the total value of all deals dropped by 7% overall (2016: USD 74.2 billion), with the high transaction volume of the previous year primarily attributable to the acquisition of Syngenta by the China National Chemical Corporation. No strong uptick in transactions is expected for the second half of the year in response to ongoing uncertainties over fiscal policy.
So far, the 2017 M&A year has one major transaction that sticks out: In January, the US pharmaceutical and consumer goods manufacturer Johnson & Johnson announced plans to acquire Swiss biotech company Actelion for USD 30 billion. This came after initial negotiations had been broken off in December 2016. Following the Syngenta acquisition in 2016, this is already the second big-ticket deal on the Swiss M&A market within the space of a year and one of the country’s five largest transactions of all time.
The outlook for the global economy remains positive on the whole. The fact that the interest rate environment is still favorable at present is also freeing up money to fund M&A activities, benefiting private equity investors in particular, who tend to be highly leveraged. Accordingly, the Swiss M&A market also experienced significant private equity activity during the first half of 2017: Of the ten largest transactions conducted, no fewer than three involved a private equity buyer.
Company acquisitions abroad remain attractive due to the sustained strength of the Swiss franc. These have long been a key strategic tool in the armory of Swiss businesses seeking to diversify both their markets and their product portfolios.
Even though Chinese M&A activities have slowed slightly due in particular to new legislation on capital outflows, they remain strong compared to other countries around the world. In other words, Chinese investors are still hungry for investment opportunities, including in Switzerland.
The HNA Group is especially active on the Swiss market, having already acquired three businesses here in the shape of Gategroup, SR Technics and Swissport. During the first half of 2017, the Chinese corporation was involved in not one but two other significant deals: As well as acquiring 17% of travel retailer Dufry for USD 1.4 billion, it also took a majority stake in Glencore’s oil products and logistics business for USD 775 million in a transaction that only just failed to make into the top ten.
Developments in fiscal policy are still one of the key factors influencing the transaction business: Although things have now calmed down substantially, geopolitical instability and events in the EU and USA are making businesses more reluctant to make acquisitions. Particularly Brexit, whose economic and legal impact on the M&A market remains unclear, continues to be a source of uncertainty.
“Despite positive economic trends and a high level of activity, uncertainties surrounding financial policy and the possibility of a shift in interest rate policy make it unlikely that we’ll be seeing any strong growth in the domestic and international M&A market any time soon,” says Patrik Kerler, Head of M&A at KPMG Switzerland, assessing the situation.
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