This chapter's contributors:
Sophie Stählin - Quadra Attorneys at Law Ltd
This is the first edition of the Practice Guide – Swiss M&A published by Lexology Getting The Deal Through. It provides a topical analysis of the legal framework, opportunities, challenges and risks that arise in connection with M&A transactions in Switzerland. As applicable, each chapter also specifically deals with matters of particular relevance in M&A transactions 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, in continuation of previous Lexology Getting the Deal Through publications answering key questions around Swiss M&A.
We, from UBS’s Group Corporate Legal team, have assisted in the selection of the chapters for the Practice Guide – Swiss M&A and in bringing together authors known for their expertise and vast experience in M&A and related fields of law. We are very pleased to have been able to attract this selection of experts from very 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, in particular in the M&A area.
The 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. 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 Swiss booked personal and corporate banking and wealth management business 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. Recent examples of external M&A transactions include:
- the sale of UBS AG’s Asset Management’s fund administration servicing units in Luxembourg and Switzerland;
- the joint venture between UBS AG and Japan’s leading trust bank combining UBS's wealth management expertise with comprehensive local trust banking capabilities; and
- the sale of a majority stake in UBS's B2B fund distribution platform Fondcenter to another post-trade service provider, creating a top two B2B fund distribution platform in Europe, Switzerland and Asia.
When advising UBS Group and its business divisions on internal and external corporate transactions, reorganisations and, in particular, on M&A transactions, we are naturally confronted with the legal issues and challenges that are described in the following chapters and in particular with those that are pertinent to the highly regulated financial services industry. The UBS Group includes various regulated legal entities holding a licence from the Swiss Financial Market Supervisory Authority (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' covering M&A transactions involving Swiss financial institutions. Moreover, UBS as a financial group is subject to consolidated supervision by FINMA. Therefore, and 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 discussion with FINMA on the extent to which the transaction may have an effect on UBS as a whole from a regulatory perspective might be required. 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. Finally and 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 is in addition to the data protection issues arising within M&A transactions as set forth in the chapter 'Data Privacy and Cybersecurity'.
In conjunction with the above-mentioned issues relating to financial institutions M&A, we often deal with the structural complexity of the UBS Group, in particular when it comes to carve-out transactions concerning parts of the UBS business. The business of UBS is divided into four business divisions – Global Wealth Management, Personal & Corporate Banking, Asset Management and the Investment Bank – that operate through various group entities. Moreover, and as mentioned above, Group Functions (ie, the shared services functions of the group) are consolidated in separate service companies. Consequently, if UBS sells a business the identification and carve-out of the relevant assets is a key process to be undertaken. The chapter 'Key Intellectual Property Issues in M&A Transactions' addresses the complexity as regards intellectual property.
Swiss M&A market
Below we provide a brief overview of the Swiss M&A market, also covered in more detail in the chapters 'Private M&A' and 'Public M&A'. Although Switzerland is a small country, M&A activity in Switzerland has remained high for the past few years. On the one hand, Switzerland is home to many large multinational companies, which are global market players. On the other hand, Switzerland provides a favourable framework for M&A transactions, inter alia, with its stable economy, straightforward legal framework and almost no investment restrictions.
While the number of M&A deals in Switzerland in 2019 declined by around 25 per cent compared with 2018, the M&A deal volume more than doubled (Source: Dealogic). This trend was significantly driven by companies transforming and reshaping their portfolios. We estimate that corporates are adopting a 'wait and see' attitude with respect to bold M&A moves and instead of seeking inorganic growth through acquisitions, companies are increasingly focusing on corporate clarity, streamlining their operations through joint ventures, demergers and spin-offs. Furthermore, low or negative interest rates are likely to motivate M&A activity, and financial sponsor-led M&A remains strong, with an increase in worldwide LBO volume of 7 per cent compared with 2018 and accounting for about 8 per cent of global M&A volumes in 2019.
M&A activity has been strong in sectors exposed to secular growth and benefiting from transformative technological trends, with the pharmaceuticals and life sciences sector being in the forefront with three transactions among Switzerland’s top five transactions with respect to deal volume in 2019, as shown in the table. This also includes the 2019 blockbuster transaction, the 100 per cent Alcon spin-off from Novartis. This transaction, where UBS acted as joint financial adviser, has shown to be the largest spin-off in Switzerland and the second largest spin-off in history after the spin-off of AbbVie from Abbott Laboratories in 2013. In contrast, sectors with low intrinsic growth, such as power and utilities, consumer and retail as well as the financial industry, experienced a reduction in M&A activity.
Top five announced M&A transactions in 2019 with a Swiss target*
|Acquirer||Target||Deal value(US$ billion)|
|1 Novartis shareholders||Alcon||31.4|
|2 EQT Partners, ADIA||Nestlé Skin Health||10.1|
|4 DXC Technology||Luxoft||2.0|
|5 PolyOne||Clariant's Masterbatch business||1.6|
Source: Dealogic* Excluding ZF Friedrichshafen’s acquisition of WABCO Holdings as country and state of incorporation are US and Delaware
As regards 2020, the first draft of this introduction had set forth a promising outlook with a healthy pipeline of M&A activity. However, with the coronavirus market turmoil this has suddenly changed. Many transactions have been either cancelled or postponed for various reasons. Parties may be uncertain of the lasting effect the coronavirus crisis may have on a given transaction and its business plan or a party may be forced to focus and employ its resources on crisis management rather than M&A activity. It remains to be seen how the coronavirus crisis will evolve, but at the time of writing it seems likely that the current situation will cause a shift in M&A dynamics, at least in the short and medium term. We expect that many companies will experience financial challenges that may cause a longer-term reduction of M&A activity and also distressed M&A and restructuring work, in more general, may play a more important role in the M&A market as described in the chapter 'Distressed M&A in Switzerland'. Moreover, the covid-19 pandemic is likely to have an effect on how parties weigh risks within due diligence and deal negotiations. For instance, force majeure or MAC clauses will become increasingly important for deal teams to negotiate going forward.
Last but not least, we should like to extend a sincere thank you to all the contributing authors and our colleagues from the Group M&A Legal team for their thorough review and thoughtful comments on this introduction. Special thanks go to Alain Bee, the former head of the Group Corporate Legal team, for performing most of the preparatory work for this publication.