EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Limited, each of which is a separate legal entity. Ernst & Young Limited is a Swiss company with registered seats in Switzerland providing services to clients in Switzerland.
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Although crisis and unwelcome change are never desirable, they can create space for new opportunities. When the answer is unknown and the situation painful or uncomfortable, there is a new stimulus for change and greater latitude for innovation and new problem-solving approaches.
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This means that the opposite trend can be observed in Switzerland in uncertain times to that observed in Europe: across Europe, a total of 5,383 investment projects were announced last year by foreign investors, equivalent to a decline of 5%. However, the positive picture for Switzerland is not evident everywhere, as a look at M&A shows.
This is because geopolitical uncertainty has long been reflected in common M&A practice. Companies with a strong European focus in particular are currently much more cautious about cross-border expansion plans. Closer attention is also being paid to transactions involving the USA – for instance when valuing American target companies, where uncertainty about future trade policy conditions is increasingly being priced in.
The trend clearly points to greater risk differentiation. Political volatility is no longer just background noise; it has become an important factor in companies’ strategic decision-making. This applies not only to valuation issues, but increasingly also to the timing and number of transactions.
However, there are no signs of a fundamental change in strategy. The market does not react in real time; these shifts take a while. It is noteworthy that transactions within Europe are currently less complex. As a result, European targets tend to be favored, especially from a regulatory perspective. Activity remains high in sectors such as real estate, while in other areas, like private equity, transactions are being postponed.
The market has not yet fundamentally refocused, but there are initial indications that proximity and regulatory stability will once again play a greater role in investment decisions.
In addition, there are other factors. The geopolitical situation, in particular trade tensions, makes reliable valuations difficult. In some sectors, it is hard to predict which tariff or regulatory framework will apply in the medium term. This makes striking deals much more complex. In addition, although Switzerland is a stable market, it is not immune to global upheavals. Due to their strong international ties – especially among export-oriented SMEs – many companies have broadly diversified exposure. Those with significant sales in the USA in particular are currently experiencing structural challenges that could dampen investor interest. The Swiss market remains fundamentally attractive, though, especially due to its expertise, innovative strength and legal certainty. But in the current situation, many investors are being more cautious.
Outlook: Switzerland remains strong as an M&A location but is lagging behind the opportunities
Switzerland’s structural strength is undisputed. This is also reflected on an international comparison. However, Switzerland is closely linked to the global capital and M&A markets. When they are flourishing, the Swiss market also benefits; if they stagnate, the impact is felt rapidly. Due to the small size of the market, individual major projects also repeatedly lead to statistical outliers. Even before the recent geopolitical tensions, especially transatlantic frictions, M&A volumes had stabilized at a low level.
The market is currently dominated by cyclical movements, which are being held back and overshadowed by geopolitical uncertainty. The underlying momentum of the market remains intact, but it is being held back at the moment by a kind of strategic stalemate.
But there are also positive signs: Despite the uncertainty, according to the EY CEO Pulse, almost half of Swiss CEOs (46%) are planning to complete at least one merger or acquisition in the next 12 months.
Geopolitical risks at BoD level: recommendations for action in an era of uncertainty
In an increasingly unstable world order, geopolitical developments are no longer just a peripheral issue, but a central component of strategic corporate governance. For members of the Board of Directors, this means dealing more closely with geopolitical risks – both preventively and reactively. Several fields of action need to be taken into account in the work that body does.
First of all, it is important to ensure that the company has established a structured geopolitical early warning system. The focus here is on geopolitical scenarios and their impact on the company, as well as close dialogue with management and critical scrutiny of decisions. Dialogue with internal and external stakeholders and regular briefings by external experts or specialist consultancies make it easier to put current events into context and understand their potential impact on the company. An external geopolitical board or advisory board can be considered as a way of further professionalizing these efforts. In the current environment, geopolitics is a priority theme for every board of directors of an internationally active company. The board of directors share the responsibility for identifying risks at an early stage and making strategically wise decisions.