EY’s «Mergers & Acquisitions Quarterly Switzerland»

Ambiguous Swiss M&A market in Q3 2013 – Low volume but increasing deal activity

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The Swiss M&A market showed a mixed picture in the third quarter of 2013. On the one hand, the market was characterized by continuing low deal volume, totaling CHF 5.2 billion. This represents a slight decline of four percent, compared to the previous quarter. In contrast, deal activity gained momentum with 162 recorded transactions, reflecting a significant increase in comparison to previous quarters.

Zurich, 8 October 2013 – With disclosed deal volume of CHF 5.2 billion in Q3 2013, the Swiss M&A market continued to perform on a low level, confirming the trend of the previous quarters in 2013. In comparison to Q2 2013 and Q3 2012, total deal volume decreased by four and six percent, respectively. Low market volume is explained by the limited number of large deals in the third quarter, with merely seven transactions valued above CHF 250 million. Beat Dolder, Head Mergers & Acquisitions at EY Switzerland mentions: «Despite low volume, the Swiss M&A market activity showed encouraging signs with 162 announced transactions in Q3 2013. This reflects an increase of 22 deals, compared to the previous quarter, and an increase of 20 deals, when compared to the same quarter of the previous year. Stronger economic data for Switzerland but also for the Eurozone had a positive impact on M&A activity in Switzerland».

Strong activity in the «Media, Technology and Telecommunication» sector
With 21 percent of all announced deals stemming from «Media, Technology and Telecommunications», this sector accounted for the largest deal activity in the third quarter of 2013. It was followed by the «Industrial Goods and Services» sector, contributing 16 percent to total deal size. Compared to the previous quarter, Swiss M&A activity in Q3 2013 was more diversified across different industries, resulting in smaller shares of the aforementioned top sectors.

Increasing share of mid-market transactions
The share of mid-market transactions, characterized by deals between CHF 50-250 million, increased significantly from 31 percent in Q2 2013 to 47 percent in Q3 2013. By contrast, small transactions below CHF 50 million trended downward, accounting for 34 percent of all deals in the third quarter 2013, in comparison to 51 percent in the previous quarter. The portion of large deals above CHF 250 million remained nearly unchanged and amounted to 19 percent. Although the shift from small to mid-market deals contributed to higher total market volume, this positive development was outweighed by the limited number and volume of large deals, thus resulting in an overall decline of total market volume in Q3 2013, when compared to the previous quarter. In Q3 2013, deal size was disclosed in approximately one quarter of all announced transactions.

The announcements by the US Fed and the Swiss National Bank in September 2013 to continue its expansionary monetary policies as well as improving macroeconomic fundamentals in Switzerland and the Eurozone are expected to have a positive influence on Swiss M&A activity in the mid-term. In addition, business owners that were holding off disposals due to weak economic conditions and low valuations are expected to gear up for transactions as market confidence is increasing.

On the other hand, the uncertainty of leaving the current state of an expansionary monetary policy and, thus, facing increasing interest rates as well as ongoing challenges in regards to the US fiscal cliff might dampen M&A activity in the mid-term. Even though signs of an economic recovery are getting stronger with regards to the Eurozone, some corporate leaders may still be cautious in light of further downsizing and, hence, be hesitant to undertake business expansions.

Louis Siegrist, Managing Partner, Head Transaction Advisory Services at EY Switzerland states: «All in all, the outlook on Swiss M&A activity is cautiously optimistic, based on improved economic fundamentals and increased market confidence in recent months. However, high market volatility and macroeconomic risk factors in the European Union, in particular with regards to Southern European countries, will play a major role in the development of deal activity in forthcoming quarters».

About EY’s M&A Quarterly Switzerland
EY’s Merger & Acquisitions Quarterly Switzerland is a publication summarizing the M&A market activity in Switzerland across various industry sectors. The objective of this publication is to provide an overview of the M&A market, valuation metrics, events and acquisition opportunities. This is the 20th edition in the series, which began in January 2009.

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EY’s organization is represented in Switzerland by Ernst & Young Ltd, Basel, with ten offices across Switzerland, and in Liechtenstein by Ernst & Young AG, Vaduz. In this publication, «EY» and «we» refer to Ernst & Young Ltd, Basel, a member firm of Ernst & Young Global Limited.