This Practice Guide – Swiss M&A – published by Lexology Getting the Deal Through in its fourth edition, provides a topical and expert analysis of the legal framework, opportunities, challenges and risks that arise in connection with Swiss M&A transactions. Each chapter deals with a key topic of relevance in Swiss M&A transactions, exploring trends, legislative developments and fundamental issues affecting strategic decision-making in Swiss M&A, not least in the highly regulated financial services industry, which is of particular interest in Switzerland as one of the leading financial centres globally. As such, the Practice Guide Swiss M&A aims to serve as a comprehensive manual for industry practitioners when dealing with transactions with a Swiss dimension answering key questions around Swiss M&A.
We, from the UBS Group corporate legal team, have assisted in the selection of the chapters for this guide and in bringing together respective authors known for their expertise and vast experience in M&A and related fields of law. We are delighted that another interesting chapter has been added to the repertoire since last year, namely, ‘Selling to, Buying and Partnering with Private Equity Firms’ (to be added to this publication online), bringing the total number of chapters in the guide to 22. A change in the authors of ‘Distressed M&A in Switzerland’ and on the topic of M&A disputes (‘Legal Remedies and Pitfalls for Sellers in Pre-Closing M&A Disputes’) brings a fresh take to such topics. We are pleased once again to have been able to attract this selection of experts from renowned Swiss law firms. We have worked with many of these authors or their law firms in the past and can look back on a track record of successful collaborations, particularly in the M&A area.
The UBS Group corporate legal team, with its dedicated lawyers, advises and supports UBS Group and its business divisions on internal and external corporate transactions and reorganisations, in close coordination with divisionally aligned or fellow functional legal teams, all working together under the umbrella of UBS’s Group Legal area. Since 2014, UBS has undertaken a series of internal transactions, changing its legal structure to improve the resolvability of the group in response to ‘Too Big to Fail’ requirements. In December 2014, UBS Group AG became the holding company of the group. In 2015, UBS AG transferred its personal and corporate banking and wealth management business booked in Switzerland to the newly established UBS Switzerland AG. In 2016, UBS Americas Holding LLC was designated as UBS’s intermediate holding company for the group’s US subsidiaries, and European wealth management subsidiaries were merged into UBS Europe SE, the group’s Germany-headquartered European bank subsidiary. In 2017, the shared services functions in Switzerland and the UK were transferred from UBS AG to UBS Business Solutions AG. In 2019, UBS Limited, the group’s UK-headquartered bank subsidiary, was merged into UBS Europe SE in response to the Brexit vote.
At the time of writing, UBS has just completed the acquisition of Credit Suisse in an historic rescue deal brokered by the Swiss Federal department of Finance, the Swiss National Bank and the Swiss Financial Market Supervisory Authority (FINMA) with the resulting unprecedented merger of two globally systemically important banks and the largest banking merger since the 2008 global financial crisis. Credit Suisse Group AG has been merged into UBS Group AG and the combined entity will operate as a consolidated banking group. The integration phase of the merger will now commence and be led by dedicated integration teams, while as regards Credit Suisse’s Swiss business UBS has not yet decided whether to integrate but continues to carefully examine all options.
Recent examples of external M&A transactions of UBS during the past 12 months include:
- UBS’s acquisition of Credit Suisse by the merger of Credit Suisse Group AG with UBS Group AG in a rescue deal brokered by the Swiss government;
- UBS Asset Management’s sale of its investment in its Japanese real estate joint venture Mitsubishi Corp-UBS Realty Inc to KKR & Co Inc;
- the sale of UBS Swiss Financial Advisers AG to Vontobel; and
- the sale of UBS Europe SE’s Spanish wealth management business to Singular Bank.
When advising UBS Group and its business divisions on internal and external corporate transactions, reorganisations and, in particular, M&A transactions, we are naturally faced with many of the legal issues and challenges that are described in this guide, particularly those that are pertinent to the highly regulated financial services industry. The UBS Group includes various regulated legal entities holding a licence from FINMA or a foreign regulator. An M&A transaction involving one or several regulated entities may therefore trigger regulatory consent or notification requirements as described in the chapter ‘Financial Market Regulation’. Moreover, UBS as a financial group is subject to consolidated supervision by FINMA. Therefore, even if an M&A transaction does not directly trigger a notification or consent requirement, a careful assessment and, as the case may be, a courtesy discussion might be held with FINMA on the potential regulatory implications of the transaction on UBS as a whole. For buy-side transactions and joint-venture arrangements this may also involve discussions on how an acquired business or entity can be embedded into UBS’s policy and risk control framework implementing the legal and regulatory requirements applicable to the UBS Group. Additionally, as described in the chapter ‘Financial Market Regulation’, banking secrecy protected by Swiss criminal law may add an additional layer of complexity if the disclosure of bank client information is required within a transaction. This comes in addition to data protection issues, such as restrictions on cross-border transfers of client data, arising within M&A transactions as set forth in the chapter ‘Data Privacy and Cybersecurity’, which chapter also comments on the revised Federal Data Protection Act (FDPA) due to enter into force on 1 September 2023 bringing the FDPA in line with the EU General Data Protection Regulation. Further, the ‘Merger Control’ chapter gives key insights into the Swiss merger control framework, which is influenced by the EU merger control model and noting that the Cartel Act is currently under revision. The authors also provide an update on the status of a preliminary draft law for Swiss investment control the aim of which is twofold: to avoid possible threats to public order and security arising from takeovers by foreign investors and to prevent any distortions of competition in the event of takeovers of Swiss companies by states or state-related investors.
The combined UBS will operate with five business divisions, seven functions and four regions and, in addition, Credit Suisse AG. Because of the structural complexity of the UBS Group and particularly the shared services functions of the group, which are consolidated into separate service companies for certain of our jurisdictions, our sell-side or joint-venture M&A transactions sometimes include important pre-closing carve-out considerations, ranging from the separation of functions and assets such as employees, IT and IP to offering transitional services for a limited period post-deal completion, as described in ‘Carve-Out Transactions’. On the other hand, the chapter ‘Post-Merger Integration’ explains the challenges of integrating the newly acquired business into the existing structure and to realise acquisition value, which will of course be of great importance and relevance to UBS over the near term in view of the integration of the Credit Suisse business. The chapters ‘Key Intellectual Property Issues in M&A Transactions’ and ‘Labour and Employment’ address the complexities that can arise as regards intellectual property, particularly in a group context, and employment law concerns respectively.
In 2020, UBS launched its global venture capital fund, UBS Next, funded exclusively by UBS and managed by a dedicated tech venture investment team. The UBS Next portfolio targets investments in the fintech and the broader tech ecosystem; through equity investments, the UBS Next team is able to ensure closer strategic alignment with key partners while remaining focused on co-developing digital innovation and ecosystems through partnerships, research and innovation pipeline management. The ‘Venture Capital Investments’ chapter deals with investments into young companies, a topic that will appeal to many, including UBS. While complementing other interesting chapters such as ‘Joint Ventures – Selected Aspects’ and ‘Private M&A’, the authors focus on matters of particular interest to the venture capital investor, including key provisions in investment agreements, investment protection through preferential economic rights and exit strategies.
The new chapter, ‘Selling to, Buying and Partnering with Private Equity Firms’ dives into the particularities involved with private equity M&A. Traditionally banking industry M&A does not heavily involve private equity players; however, private equity deals are a cornerstone of the Swiss M&A market.
The Swiss corporate law reform that amends the Swiss Code of Obligations entered into force on 1 January 2023 and provides in particular more flexibility regarding share capital structure and dividend distributions, enhances shareholders’ rights in terms of better corporate governance including gender diversity on boards and executive management and modernisation of shareholders’ meetings. The ‘Shareholder Activism in Switzerland’ chapter discusses, among other things, the legal framework for shareholder engagement in Swiss listed companies as amended under the Swiss corporate law reform. Switzerland, as other global economies, has seen a shift to heightened public focus on environmental, social and governance (ESG) issues, which corporates must now embrace. Shareholders, especially of listed companies, will no doubt expect matters of sustainability to be addressed in business strategies, company reporting and public communications. Moreover, certain commentators2 are reporting the emergence of an ESG trend among their M&A clients as further mentioned below.
Swiss M&A market
Below we provide a brief overview of the Swiss M&A market, as also covered in more detail in the chapters ‘Private M&A’ and ‘Public M&A’, among others. While global M&A markets showed a decline in M&A activity in 2022 with a return to pre-pandemic levels, Switzerland turned out yet another strong year, albeit with activity tapering in the second half of the year. The robustness of the Swiss M&A market reflects the fact that, on the one hand, Switzerland is home to many large multinational companies that are global market players and, on the other hand, Switzerland provides a favourable framework for M&A transactions, with its stable, liberal economy, its straightforward legal framework and almost no investment restrictions.
The overall number of M&A deals involving Swiss players increased in 2022 with 647 deals recorded compared with 604 deals in 2021.3 Cross-border transactions again saw the bulk of the activity in 2022 with about twice as many outbound transactions to inbound transactions (Swiss target) reflecting 2021 proportions. Domestic deal flows remained more or less consistent compared with the previous year, with 127 deals being announced. Overall deal volumes, however, dropped by 18.5 per cent compared with 2021, from US$170 billion in 2021 to US$138.5 billion in 2022.4
In terms of Swiss deals, 2022 continued to highlight the importance of digital transformation with targets in the technology area (in particular data security and software) remaining very attractive, the technology, media and telecoms sector accounting for one-fifth of all deals. Transactions in the industrial markets were also active. While the pharmaceuticals and life sciences industry displayed strong M&A activity, deal volumes declined owing to the absence of mega-deals.
Deal activity in 2022 indicates that companies are continuing to review their portfolios to survive and preserve value in a post-pandemic market. Some companies are restructuring or exiting non-core businesses to allow management to focus on key areas while others are consolidating or undertaking strategic bolt-on transactions. In addition, companies are more and more engaging in ESG due diligence exercises as a tool for strategic M&A decisions. Firms that have a solid ESG strategy, ESG-friendly policies and reporting practices are more likely to be seen as maintaining and creating value and are thus more likely to attract external investment.
The largest deal of the year was the US$20 billion merger between Royal DSM, a Dutch publicly traded chemicals company, and Firmenich, a privately held Swiss fragrance and flavourings producer.
The financial services sector saw an increase in deal activity particularly regarding investment management. Among the largest deals in this sector was UBS’s sale of the Japanese real estate joint venture Mitsubishi Corp-UBS Realty Inc. In banking M&A, Credit Suisse divested several minority holdings and non-core business lines to focus on its core businesses, for instance, the sale of its securitised products group to a consortium of Apollo and Pimpco and the sale of Credit Suisse’s minority stake in Allfunds. Otherwise, the deal flow was made up mainly of smaller investment management deals, with many independent asset managers being either acquired by private equity-backed players or consolidating with other larger independent asset managers, probably as a response to the end of the transitional period under the Financial Institutions Act amendment that required asset managers to enhance their control framework by 31 December 2022.
Two years post-pandemic and with the end of government stimulus packages the Swiss market is now seeing the perhaps inevitable effects of covid-19 on Swiss businesses. Bankruptcy claims rose by 21 per cent between January and November 2022, with 4,349 cases being reported, and again increased by 36 per cent in Q1 2023 compared with the same quarter in 2022.5
Globally, 2022 was a reset year following the highs of 2021, with a slowdown attributable to the Ukraine war, interest rates and macro uncertainty. In terms of valuation, the average acquisition multiples decreased by 1.4x versus 2021 (the average global EV/EBITDA acquisition multiple was 11.3x in 2022 versus 12.7x from 2021).6 While M&A volumes were down minus 37 per cent year on year, activity levels remained in line with the five-year average prior to 2021. Despite some large deals taking place, the reduction in the 2022 global M&A volume was primarily driven by smaller average deal size.
Top 5 announced M&A transactions in 2022 with a Swiss target7
|Deal value (US$ billion)
|MA Med Alliance
|Groupe Bruxelles Lambert
It remains to be seen how the Swiss market reacts in the near term; however, in line with the slow start to 2023, Swiss M&A activity is expected to remain sluggish, while a gradual recovery is expected in the medium to long term as macro volatility stabilises and views on interest rates and inflationary context become clearer.
As a final note, we would like to extend our sincere thanks to all the contributing authors and our colleagues from the UBS Group Legal team for their thorough review of and thoughtful comments on this introduction.
1 Ueli Studer, Kelsang Tsün and Joanna Long are in-house lawyers at UBS.
2 KPMG, Switzerland blog; Deloitte article ‘The Sustainability Imperative for M&A’.
3 KPMG, Clarity on Mergers and Acquisitions 2023, Sector Reports.
5 Reported by consulting firm Dun & Bradstreet.
6 FactSet as of 31 December 2022.