KPMG's "M&A Yearbook 2011” reveals that the number of mergers and acquisitions that took place in Switzerland during 2010, namely 262 deals, remained practically on a par with the previous year (274 deals). The overall volume of these transactions, however, rose 13 percent to USD 87.6 billion. Like in 2009, 2010 also saw one megadeal with Novartis' acquisition of Alcon (transaction value: USD 41.2 billion). Swiss companies are extremely well equipped for the 2011 M&A year.
2010 brought a halt to the M&A market's downward trend of the past two years both in Switzerland and around the world. While the number of transactions in 2010 stabilized at a level nearly on a par with that of the previous year, the total value of the transactions conducted has already grown and gives hope for further recovery in 2011.
Brilliant start to the M&A year
The 2010 M&A year was kicked off with a bang: On January 4, 2010, Novartis announced its intent to acquire Nestlé's majority stake in Alcon for USD 28 billion. The transaction was then wrapped up toward the end of the year with a complete takeover of all of the shares still remaining on the market following the announcement. Just one day later, Nestlé published its acquisition of Kraft Foods' frozen pizza business. This transaction had a volume of USD 3.7 billion. Thus began the M&A year.
Nevertheless, the real wave of M&A recovery has not yet materialized since neither the rhythm nor the transaction amounts became the norm during the 2010 M&A year. Still, other important transactions were to follow over the course of the year with acquisitions of or made by Swiss companies such as Coop/Transgourmet, Swisscom/Fastweb, CVC/Sunrise, Cephalon/Mepha, CTS Eventim/Ticketcorner and ABB/Baldor.
Private equity as an established player
Contrary to expectations from some corners, the private equity industry made a successful showing in this environment. While some voices hailed the end of the private equity industry during the financial crisis, 2010 has demonstrated that private equity has fought hard to firmly establish itself on the market. It was also involved in some of Switzerland's largest transactions. One key competitive advantage was the flexibility and speed of numerous private equity firms. 2010 also revealed that banks are once again ready to provide external financing to support high-quality transactions.
13 percent rise in total M&A volume
An analysis of Switzerland's most important statistical transaction figures during the year reveals that the overall volume of transactions announced in 2010 totaled some USD 87.6 billion. This is a 13 percent increase over the previous year.
Top 10 Swiss M&A transactions 2010
From an industry-based perspective, the majority of the action was seen in the healthcare and consumer markets thanks to the Novartis/Alcon transaction. Transactions with targets from these sectors accounted for USD 47 billion of the total volume.
Exchange rate trends and budget deficits as inhibiting factors
Current restraint on the M&A market can be attributed to the afterpains of the latest credit crunch and financial crisis as well as related uncertainties: The most important of these concern exchange rate trends between the dollar, yuan and euro as well as - particularly from a Swiss perspective - questions concerning how the Swiss franc will fare in the future. Some others, however, include instability in the governmental budgets of the USA, several EU member states and other countries. Exchange rate fluctuations and budget deficits are also symptoms of a constant, long-term shift in global economic powers which clearly highlight the fierce economic competition taking place between the various countries and regions.
Long-term shift in forces on the M&A market
These shifts are having a growing impact on companies' M&A activities. New global corporations are emerging in the BRIC countries, particularly in the raw materials, technology and pharmaceuticals industries, which are achieving their global growth targets on the international M&A market, as well. Moreover, sovereign wealth funds, especially from the Arab world and Asia, are back on the lookout for interesting acquisitions.
Swiss companies highly committed
Swiss companies show above-average involvement in the M&A business as buyers. Apart from their historic markets in Switzerland, Europe and the USA, they are also investing in growth markets. This further strengthens Switzerland as a business location. Again in 2010, the number of foreign companies acquired by Swiss enterprises considerably exceeded the number of Swiss firms that passed into foreign ownership.
Trends differ from one sector to another
Financially robust Pharmaceutical players are expected to lead M&A activity in the Healthcare & Life Sciences sector in 2011. Some smaller deals are likely in Medical Technology and Healthcare service provision, both of which are attracting much interest from investors.
Swiss Chemicals groups appear to be in particularly buoyant mood following a period of reorganization, and there could be some interesting opportunities for Swiss groups abroad. Activity is likely to concentrate on building a presence in key regional markets such as Asia and in enhancing product portfolios.
One of the sectors hit hardest by the economic downturn, Financial Services M&A activity is likely to reflect significant consolidation in Private Banking, where new regulations are prompting fundamental revisions of business and operating models, including on-shore presence. Elsewhere in Financial Services more clarity over regulation such as Basel III should encourage activity.
Export-led Industrial Markets are especially suffering from the strong Swiss Franc but cautious optimism prevails as late 2010 saw a significant upturn in order book levels. M&A in 2011 may be modest compared to some other sectors, but global competitive pressures may combine to encourage transformational deals and/or acquisitions along the supply chain.
2011 - 2012 may see further consolidation within the Consumer Markets sector and some major non-core disposals by the Food & Drink giants, who are likely also to remain in highly acquisitive mode. Luxury Goods manufacturers may seek to steal the Consumer Markets M&A crown as they search for potentially large deals outside Switzerland.
Technology deals are expected to continue to dominate Information, Communication and Entertainment as many players across industries seek to enhance their capabilities in IT and software solutions, which are increasingly critical to their businesses. A shuffling of Media portfolios is likely to occur as well as a strengthening of the Swiss presence in Eastern Europe, but no groundbreaking deals are expected.
The focus on high-grade Real Estate around Geneva, Lausanne, Zurich and Central Switzerland is almost certain to continue for the foreseeable future, with prices remaining accordingly high. 2011 may see key players investigating further opportunities in development projects while the residential market continues to boom.
Not to be under-estimated, other industries such as Energy (primarily renewables) and Commodities are likely to see significant M&A activity in 2011 as interest in the Swiss scene may continue to grow, with 2010 having seen some major energy traders relocate sizeable teams to Geneva.
Good starting point for 2011
All things considered, 2010 was an important, stabilizing year for M&A. The boards of directors and executive committees of internationally active Swiss companies have rediscovered the long-term growth opportunities offered by acquisitions. They have systematically analyzed and prepared both strategic alternatives and potential acquisitions in order to ensure their long-term development, particularly in growth markets. The signs of the times look good for Swiss companies: On the one hand they benefit from an extremely healthy domestic market and, on the other, Swiss companies have the greatest liquidity reserves on the international stage and thus the greatest financial strength. And at least for the time being, upheavals on currency markets have enabled acquisitions within the dollar and euro zones to be conducted at favorable terms in strong Swiss francs. Accordingly, the starting point for Swiss companies is positive and there are good reasons to look to Switzerland's 2011 M&A year with optimism.
Information on the M&A business in individual sectors as well as other information can be found in the "M&A Yearbook 2011”.
Zurich, Januar 18, 2011
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