Large appetite for M&A among Swiss groups
- Swiss companies more pessimistic than global average – one-third expect economy to deteriorate
- 60% of Swiss companies are planning to make acquisitions in the next twelve months
- Currency fluctuations, volatile commodity prices and political instability are impacting confidence in the economy
- UK no longer one of the top five places to invest after Brexit decision
ZURICH, 21 November 2016. Major Swiss companies are bracing themselves for tough times: one-third of Swiss companies polled expect the global economy to become gloomier in the short term. At the last survey in April, the figure was just under one in four.
This makes Swiss companies pessimists by international comparison: globally, just under one company in four expects a deterioration – and even this is up from the April survey, when about one in seven was anticipating a weaker economy.
In spite of the more subdued economic prospects, companies increasingly want to invest in acquisitions, and the appetite in Switzerland for M&A is rising: 60% of the companies surveyed are keen on making acquisitions in the next 12 months – the highest level since the record in autumn 2014, when it was as high as 80%. Six months ago, the figure was only 35%. Interest in acquisitions is moving upwards all around the world too – from 50% to 57%.
These are the conclusions of the “Capital Confidence Barometer” from auditing and advisory firm EY. The study is based on a survey of 1,700 managers in large companies around the world.
Currency fluctuations and volatile commodity prices are a particular concern for business. They represent the biggest risk for one company in three. Almost as many consider political instability in their own country to be the biggest risk. By contrast, the economic slowdown in China and Brexit are the largest worry for only 7% and 5% of companies respectively.
Stefan Rösch-Rütsche, Partner and Head of Transaction Advisory Services at EY Switzerland, comments: “The political uncertainty in key markets such as the USA is unsettling companies around the world – especially following the surprise election of Donald Trump. The situation in Russia and the EU, the growth pause in China and the generally volatile environment are causing companies concern the world over. There is a clear increase in interest in takeovers. This is how companies are looking to move into new markets and make sensible additions to their portfolio. At the same time, many are selling divisions that are no longer core, so there is a great deal of activity in the transaction market.”
Brexit: UK no longer in the top five
Following Brexit, though, the UK will not benefit from this trend. Quite the opposite: for the first time since the survey started, the UK is no longer one of the top five investment destinations. Germany has moved up to third place behind the USA and China, followed by Canada and France in spots four and five.
Swiss companies mainly invest in the domestic market. The USA, India and Germany are also among the top destinations for Swiss investment.
“Companies are increasingly reviewing their portfolios in light of the growing digitalization of entire sectors and a volatile economy, and getting ready to face the future,” observes Rösch-Rütsche. “Business units are being acquired or divested in the interests of efficiency. The persistently low level of interest rates makes it easy to finance deals. We are therefore likely to continue to see large numbers of M&A transactions – including in Switzerland. Plenty of companies here have used innovative technology to establish a name and a brand that are very attractive to international investors.”
However, the prospect of Brexit means that this trend is not so clear cut for the UK market, he notes: “There is great uncertainty. No one knows exactly what the future arrangements for relations between the UK and the EU and market access will be. Many companies are therefore holding back on investing in the UK.”
No megadeals anticipated
While Swiss companies are expecting a higher number of deals, they do not see huge transaction volumes at present. None of those questioned said they had planned megadeals of over a billion dollars. Globally, just 3% said they were planning deals on this scale. Overall, 80% of Swiss companies surveyed are expecting M&A volumes to hold steady over the next 12 months.
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