Swiss M&A activity slowing down in Q3 12

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In the third quarter 2012, the Swiss M&A market performance slowed down. Disclosed deal volume declined significantly to merely CHF 5.2 billion in Q3 12, the lowest amount recorded since Q2 10. In total, 142 transactions were recorded, the same level as in the previous quarter. Based on latest Capital Confidence Barometer, priorities of top executives focus on improving fundamentals as the economic outlook is dampened. For the near future Swiss M&A activity is expected to remain on a moderate level.

ZURICH, 15 October 2012 – The decline of disclosed deal volume approximately 80 percent compared to the last quarter is mainly explained by the absence of the announcement of large transaction announcements with Swiss participation. Deal volume declined for the second consecutive quarter to merely CHF 5.2 billion; the lowest value since the second quarter 2010. Jürg Stucker, Head Mergers & Acquisitions at EY Switzerland, says: «With 142 announced M&A transactions, the number of deals in Q3 held constant compared to the last quarter and remained on rather low levels, when compared to the second half of 2011 and the beginning of 2012. The Eurozone crisis and its impact are the main cause for reduced deal activity».

SMI is in the black
During the last quarter, the Swiss Market Index trended upward and closed with a six percent increase in stock performance. In the trailing twelve-month period ended 30 September 2012, the index gained over 17 percent. Although its performance in the last quarter was positive, the future market development is to be viewed with caution, due to a conservative economic outlook in Switzerland and several European countries.

After four quarters of mainly negative trailing twelve-month industry stock performance, Q3 12 showed a positive development for most of the equally-weighted industry sectors for the preceding twelve-month period ended 30 September 2012. Similar to Q2, the best performing industry was the Healthcare sector, improving its performance by over five percentage points during Q3 12 and reaching a positive performance of over 23 percent for the last twelve months. The only sector showing negative results was the «Energy, Transportation and Utilities industry», down approx. six percent in this period.

«Retail and Consumer Products» the most active sector in M&A
During the last three-month period, « Retail and Consumer Products» was the most active industry in Switzerland. In terms of number of M&A Transactions, the sector contributed 18 percent to all announced deals. Together with «Media, Technology and Telecommunications» as well as «Industrial Goods and Services» reaching 17 percent and 12 percent respectively, these top three sectors accounted for approximately half of all Swiss-based M&A transactions.

Declining number of transactions above CHF 250m
In the third quarter 2012, the share of small transactions below CHF 50m was on the rise and accounted for 48 percent of all announced transactions with disclosed deal value, increasing by 15 percentage points. As transactions in the mid-market segment between CHF 50m and CHF 250m increased from 29 in Q2, to 34 percent in Q3 12, the number of deals with large deal volumes above CHF 250m declined significantly, from 39 in Q2, to 18 percent in Q3 12.

Outlook
According to EY’s most recent Global Confidence Barometer, uncertainty in regards to the Eurozone crisis is largely prevailing and continues to be the dominating force driving M&A activity across Europe. Louis Siegrist, Head Transaction Advisory Services at EY Switzerland says: «Our study found that boardroom priorities rather focus on improving fundamentals than on generating top-line growth through M&A transactions».

A second factor that is likely to reduce future M&A activity, according to our study, is an increasing valuation gap between buyers and sellers. Coupled with a sharp decline in sellers that are willing to come to the deal table, from 31 percent of respondents in April 2012 to 19 percent this September, the business case for M&A is threatened.
All in all, the following remains the case: While the strong Swiss Franc benefits Swiss acquirers willing to do deals abroad, economic uncertainty in the European Union as well as the faltering economic outlook causes hesitation among companies to execute transactions. Hence, Swiss M&A activity for the last quarter of 2012 is expected to result in a limited number of deals as well as rather small deal volumes. It is likely that these trends also continue into the beginning of 2013.

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  • Download Capital Confidence Barometer (3.7 MB)  


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