Swiss SMEs are coveted takeover targets for investors

Global M&A activity developed positively in 2018 with a year-on-year increase in value of 20%, while the number of transactions declined by 10% over the same period. Indecision characterized the macroeconomic and geopolitical environment in the second half of 2018, with multilateralism increasingly questioned, U.S. protectionism intensifying, and uncertainties around Brexit increasing. This macroeconomic uncertainty continues to prevail in 2019. Even though the economic situation in Switzerland remains positive, the tide can turn quickly here as well.

Increasing hesitation and procrastination in Switzerland as well

According to Deloitte's latest survey of Swiss CFOs, the Swiss economic outlook is less optimistic for the first time in over three years. This trend is confirmed in Deloitte's latest survey of Swiss boards of directors: Since summer 2018, the number of positive assessments of the economy has fallen by practically half.
M&A activity among Swiss SMEs remained stable overall in 2018 (see chart). In the second half of the year, however, the aforementioned uncertainties at both international and national level - Switzerland's relations with the EU or a possible renewed appreciation of the Swiss franc - led to a noticeable decline in transactions.

Swiss SMEs are coveted takeover targets for PE funds

This optimism is due not least to the growing interest of private equity funds in Swiss SMEs. In 2018, domestic and foreign private equity funds acquired 32 Swiss SMEs. This compares with 28 in the previous year and only 18 in 2015. After years of stability, the growing activity of Swiss funds is striking: while they were only responsible for around one-third of acquisitions of Swiss SMEs in 2017, their share already reached 44% last year. "Thanks to low interest rates and growing investment capital, private equity funds bought more small and medium-sized companies in 2018. With interest rates expected to remain low and financing conditions still favorable for funds, we expect this trend to continue in 2019," said Stephan Brücher, Partner Financial Advisory and Private Equity Leader at Deloitte Switzerland.

Preferred destinations thanks to good reputation

Swiss SMEs also stand for trust, know-how and reliability on an international level. Switzerland remains a pioneer in the development of many new technologies and Swiss SMEs are internationally recognized for their expertise in micro and medical technology, watchmaking or robotics. As in the previous year, buyers in 2018 again favored Swiss SMEs operating in the industrial sector (27 transactions), closely followed by companies in the technology, media and telecom sectors (25 transactions).

"The outlook for M&A activities of Swiss SMEs is positive overall for 2019. However, the number of transactions could decline slightly due to geopolitical tensions worldwide as well as in Europe. Swiss SMEs are valued not only for their niche expertise, but also for their great adaptability to the specifics of their home market. Despite a possible decline in M&A activity this year, SMEs, for their part, should continue to make acquisitions abroad in order to diversify their activities or strengthen their geographical presence. European companies, especially in neighboring countries and in the industrial sector, have been attractive targets for years," says Jean-François Lagassé, Partner Financial Advisory.

Source: www.deloitte.ch