IT sector as the biggest driver of M&A activities by Swiss SMEs

M&A activity by Swiss SMEs reached a new high in 2022, according to an analysis by the auditing and consulting firm Deloitte. The number of M&A transactions involving Swiss SMEs amounted to 244, which is 4.7% more than in the previous year. This is mainly due to the high number of cross-border transactions, which accounted for over 70% of all deals. Of the 173 international transactions, 75 involved Swiss SMEs making an acquisition abroad - 25% more than in 2021. Since the Deloitte MidCap M&A Study was first published in 2013, never before have so many Swiss SMEs bought companies abroad. The number of domestic transactions fell by 7 percent to 71. In each case, the study on M&A activities of Swiss SMEs examines merger and acquisition transactions (acquisition of majority stakes) of small and medium-sized Swiss companies between January 1 and December 31. Already in the first half of 2022, a high number of SME-company transactions became apparent.

Swiss SMEs are still attractive for investors

At 169, the total number of Swiss SMEs acquired in 2022 was only 2 percent lower than in the previous year. The number of acquisitions made by foreign companies remained almost stable at a high level of 98, having risen by over a third in 2021. 65% of the buyers of Swiss SMEs were companies from Europe, while the other buyers were mostly from the USA (23%). While the total number of M&A deals by Swiss SMEs was still very high in the first half of 2022 (133 transactions), it declined significantly in the second half of the year (111 transactions) due to inflation and recession fears. Thus, only 45% of all transactions in 2022 were initiated in the second half of the year. This is the lowest half-year share since the start of this study series in 2013. "The further increase in takeover activity by Swiss SMEs is a sign of the robust Swiss economy and the innovative strength of our location. The strong Swiss franc and the much stronger rise in inflation abroad have also prompted many Swiss SMEs to make acquisitions. And Swiss SMEs continued to be attractive to investors despite the high prices," explains Anthony West, Partner and Head of Corporate Finance Switzerland at Deloitte.

IT sector with peak in M&A activity

M&A activity in the Swiss TMT (technology, media and telecommunications) industry reached a new high in 2022. It comprised 62 deals, representing 26% of all transactions involving Swiss SMEs. In 2021, the share was still 23%. Remarkable is the share of the IT subsector, to which the majority of TMT transactions can be attributed with 48. Proportionally, many more Swiss SMEs were purchased by foreign companies in IT (56%) than across all sectors (40%). This shows that the Swiss IT sector has produced many attractive companies in recent years. One reason for the high level of interest in Swiss IT service providers is likely to have been the major advances in digitization during the past few years and the Corona surge, which have fueled the growth of IT service providers and also led to many new startups in Switzerland. Many of these companies offer services such as cloud solutions, software as a service (SaaS) or cyber security software.

"In order to drive growth in the IT and tech industry, talented IT specialists are in demand. They are among the most important resources. In times of demographic change and a shortage of skilled workers, SMEs that have such specialists are extremely attractive takeover targets. Scalability, high growth, and business models based on recurring revenues also make companies extremely attractive. The active start-up community in Switzerland, which is strongly fed by ETH and EPFL, has also strengthened the attractiveness of Swiss IT companies," says Stephan Brücher, Partner Financial Advisory at Deloitte Switzerland.

Private equity stable at a high level

Merger and acquisition activity involving a private equity fund remained stable at a high level in 2022, having risen steadily in recent years. Private equity companies were involved as buyers or sellers in 94 of the total of 244 completed transactions.

Globally, 2022 was a subdued M&A year, with the global number of deals falling from 62,193 to 54,914 due to a sharp drop in the second half of the year. The appetite for sales and acquisitions waned due to the adverse global economic environment - with inflation, rising interest rates and the war in Ukraine.

"The slowdown in M&A activity by Swiss SMEs in the second half of 2022 reflects the global trend that began earlier this year. Many economists are forecasting an economic slowdown in Western economies in 2023 due to rising interest rates and continued high inflation. These elements create an environment of uncertainty that is not conducive to M&A. That being said, economic data and general market sentiment have been better than expected since the beginning of the calendar year. This could lead to fertile ground for continued M&A activity," said Jean-François Lagassé, Partner Financial Advisory and Head of Financial Industry at Deloitte Switzerland.

Source: Deloitte