Company sales abroad at record level

Company sales abroad reached a new record between January and June 2018: 40 Swiss SMEs passed into foreign ownership, a striking increase of 38% compared to the same period last year. The majority of buyers are in Europe, with nine from Germany, three each from France and the UK, and two from Sweden. Six buyers are from the USA and only two from China, according to the half-year evaluation of the Deloitte SME M&A study.

Company sales to Chinese investors on the decline

"The increase in sales abroad is a clear sign of the strength and attractiveness of Swiss SMEs. Many of them have established significant positions in niche markets and are well networked internationally. As a result, they are also sought-after targets, whether for financial investors or for companies in the same industry. With the weakening of the Swiss franc, prices have also become somewhat more affordable. The vast majority of investors also have long-term plans and want to keep know-how and jobs in Switzerland," explains Jean-François Lagassé, Partner Financial Advisory at Deloitte Switzerland. Chinese investors have become more cautious and are also divesting their Swiss investments again, observes Stephan Brücher, also Partner Financial Advisory and Corporate Finance Advisory.

Swiss SMEs were able to buy less

SMEs have been somewhat cautious or less successful so far this year with investments and acquisitions of competitors in Switzerland and abroad. While 65 companies dared to take this step in the same period of the previous year, only 60 did so in the current year. As in previous years, Swiss SMEs went on a buying spree primarily in neighboring countries. Of the total of 31 companies that became the property of Swiss SMEs, 24 came from Europe and 11 from Germany alone. Swiss companies made 5 of their acquisitions in the USA, making it the second most attractive market for takeovers.

Industrial sector and telecommunications very active

The largest number of transactions was recorded in the industrial sector with 22, followed by services (16) and consumer goods (14). A striking number of companies from the technology, media and telecommunications (TMT) sector changed hands, with eight sold abroad and three finding a new owner from Switzerland. "New technologies and digitalization promote growth and increase productivity in many sectors: forward-looking SMEs are actively exploiting this potential and finding suitable purchase candidates in Switzerland. This is hardly surprising, given that Switzerland has world-class universities that regularly produce exciting startups and spin-offs," Lagassé explains.

Swiss companies buy many industrial companies abroad; 12 of 31 acquisitions came from this sector, half of which were German companies. Of these six, four were strategic investors buying up companies matching their product portfolio, and two were financial investors.

Private equity under investment pressure

In the first half of 2017, private equity funds were still involved in 28% of the transactions, but this figure has now risen to 36%. Many PE companies are benefiting from the still attractive interest rate environment and are raising a lot of money to invest. "They are under high investment pressure and are looking hard for investment opportunities. High-quality and underfunded companies are highly sought after and expensive. The companies that are bought up are being purposefully realigned. Processes as well as structures are improved in order to sell the company again later. This development makes sense from an economic point of view, because unused potential is being exploited. Today, investors are also more conscious of assets such as long-standing employees or brand names that have been established in the market," says Brücher.

In addition to PE firms, strategic investors with healthy balance sheets also have investment pressure and are therefore also on the lookout for suitable acquisition targets. Prices therefore continue to rise and the valuation indicator for the so-called 'deal multiples' has already been increasing for six years, and in the first half of 2018 it climbed again, from 9 to 9.5. "This is a new record high and clearly shows that the prices paid do not always correspond to the real values. We see this trend not only in Switzerland, but also throughout the eurozone. Sooner or later, a correction is on the cards here," warn the specialists at Deloitte.

High uncertainty makes forecasts difficult

Internationally, political and economic uncertainties have tended to increase this year. "There is no end in sight to the trade war, interest rates are slowly rising, Italy is causing instability in the eurozone and the franc has picked up again somewhat. We never know when the markets will turn again, which is why we remain cautiously optimistic for the rest of the year," Lagassé explains.

However, the trend toward more disruptive acquisitions (disruptive M&A), which is already becoming clearer at the global level, could gain in importance and stimulate business. In the last six months, buyers and sellers were from different industries in only ten percent of transactions. "More and more companies are buying digital know-how in order to expand their own business model or turn it completely upside down. Traditionally oriented companies are now under particular pressure to make themselves fit for the future through strategic acquisitions, with SMEs from the areas of fintech, artificial intelligence, robotics or cyber security under particular scrutiny," adds Brücher.

Source: Deloitte