Record for SME corporate transactions in the first half of 2022

Switzerland saw a historic increase in SME corporate transactions in the first half of 2022. A total of 133 transactions were executed - clearly the highest half-year figure since the Deloitte MidCap M&A Study was first published in 2013, which is conducted every six months. Swiss-directed M&A activity increased by a quarter to a new high of 59 transactions. And the number of all cross-border activities (99 transactions) also corresponds to the highest value since the studies began. Already a year ago a peak in SME corporate transactions was reported.

There are several reasons for the brisk M&A activity: "Lower stock market valuations for acquisition candidates, financing costs that remain favorable in Switzerland, and the strong Swiss franc have made the acquisition of foreign companies attractive and fueled transaction fever among Swiss SMEs," explains Anthony West, Partner and Head of Corporate Finance Switzerland at Deloitte. Purely domestic transactions, on the other hand, declined again slightly, by just under 11 percent.

Buyers of Swiss SMEs come mainly from Europe

In Switzerland, a total of 93 SMEs were purchased in the first half of the year. The majority of foreign buyers were European (61%) and North American (29%) companies. The U.S. and Germany have long been the most important countries investing in Switzerland; in terms of numbers, 34 percent of investments come from neighboring countries. Deloitte M&A expert Anthony West sees the robust Swiss economy and the strong specialization of Swiss SMEs as the main reasons for this development.

At the same time, Swiss SMEs most frequently acquired businesses in Europe (85%). The remaining transactions mainly involve North American companies. Around 40 percent of acquisitions involve companies in neighboring countries, with Germany alone accounting for 27 percent of transactions. Many Swiss SMEs prefer foreign companies in the industrial sector. Also still very popular are companies in the healthcare and TMT sectors, both of which have benefited from the COVID 19 crisis.

M&A activity continues despite headwinds

Global M&A activity has already slowed sharply this year due to rampant inflation and rising interest rates, higher financing costs, the Ukraine war and growing fears of a recession. Globally, the great optimism has therefore faded, as Anthony West makes clear.

For Switzerland, he assesses the general outlook as more positive across the board, albeit less optimistic than at the beginning of the year. Since then, he said, there have been many new risks surrounding the Ukraine war and its manifold effects on the global economy. "Uncertainty is poison for corporate transactions: Stock market slumps, supply chain bottlenecks and the rise in costs for raw materials, primary goods and services are weighing on many companies - worldwide even more than in Switzerland. These are all reasons for lower global M&A activity and also a somewhat weaker appetite among Swiss SMEs for acquisitions in the second half of the year," explains Anthony West.

Lower company valuations as a favorable prerequisite for SME company transactions

Now that many central banks have raised interest rates in the fight against inflation, financing acquisitions has become fundamentally more expensive and riskier. However, the rising cost of capital has also caused many company valuations to fall: these are exciting takeover opportunities both for investment funds with large cash reserves and for financially strong companies with a strategic focus. The decline in the value of many currencies such as the euro or the British pound against the Swiss franc makes foreign companies additionally attractive for Swiss companies.

Source and further information: Deloitte