ALM Properties, Inc.
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M&A IN SWITZERLAND
WHILE the general economic situation in Europe has remained under constant pressure due to political and financial uncertainties, the M&A market in Switzerland has managed a steady increase throughout the year 2012, as it had already experienced in 2011, and has provided an interesting and rewarding range of deal opportunities. With the Swiss economy still sound, the M&A market has continued to receive positive impacts, from which both domestic and foreign players have been able to benefit and realize large transactions in Switzerland. Among the reasons for this development is Switzerlands industrial structure. The sectors that are, on a global level, considered to remain the most active in terms of M&A transactions and deal flow are the industrial sector, financial services and life sciences. All these have a strong presence in Switzerland. Indeed, the sectors that have seen the highest number of M&A opportunities in Switzerland in 2012 were financial services, healthcare and life science, retail and consumer products, as well as luxury goods. At the same time, the private banking business sector has begun to consolidate its M&A activities as a result of increased market and regulatory pressures. However, despite a generally positive sentiment prevailing throughout the year, some executives have remained cautious in the face of the omnipresent and continuing global economic uncertainty.
Finishing the year 2011 with a relatively strong last quarter, the Swiss M&A market made an even more powerful start in 2012 with high-deal-value transactions on the rise, providing for a shift in the general deal pattern during the first quarter. The same quarter featured the largest transaction on the Swiss M&A market in 2012, that is, the announced merger between Glencore and Xstrata. While small and mid-market transactions represented about two-thirds of the announced transactions, larger transactions accounted for about a third of all announced transactions, almost twice as much as in the preceding quarter. In total, there were 158 announced deals adding up to total deal volume of almost CHF 71 billion (Source: M&A Quarterly Switzerland Reports, E&Y). Following the remarkable first quarter 2012 up to today, the Swiss M&A market has stabilized on a high transaction level, resulting in the overall number of small transactions rising to a good half of all announced transactions, while large volume deals experienced a moderate slow down. Analyzing these transactions in view of the involved parties reveals a striking number of deals having occurred between Swiss and North American companies. (Source: KPMG blog).
In the course of this challenging 2012 Swiss M&A market, partners of Lenz & Staehelin were involved in two of the landmark transactions in the financial services industry.
In one of these transactions Lenz & Staehelin advised Julius Baer, the leading Swiss private banking group, on all Swiss law aspects regarding the acquisition of Merrill Lynchs international wealth management business from Bank of America. This highly complex transaction was structured as a share and asset deal (spanning over more than 20 jurisdictions), being completed over a 2-year period. Julius Baer financed this acquisition by excess cash, hybrid instruments and new equity.
The second transaction consisted in Safra Groups acquisition of Bank Sarasin. After much speculation about a takeover, Brazilian Safra Group, advised by Lenz & Staehelin, announced its acquisition of Rabobank's majority stake in SIX-listed Sarasin. Upon regulatory approval in 2012, the acquisition of this majority stake was followed by a successful public tender offer (remarkably the only public tender offer in Switzerland in 2012) for the outstanding Sarasin-shares held by public shareholders.
Further noteworthy M&A deals in the banking sector were Bank of China's cooperation with Julius Baer, ABN AMRO's sale of its Swiss bank to UBP SA and Valartis Bank's sale of its credit card business to Cornèr Banca. In the luxury goods sector some transactions worth mentioning include Tokyo-based Citizen Watch's acquisition of Swiss movement manufacturer La Joux-Perret, HKEx-listed China Haidian's acquisition of Eterna AG Uhrenfabrik, La Montre Hermès's acquisition of Natéber SA, a Swiss watch dials manufacturer as well as Hermès 32.5% equity interest in Joseph Erard Holding SA, a Swiss watch cases manufacturer.
Lenz & Staehelins involvement in 2012 in some of Switzerland's key transactions again underlines its leading role as legal advisors not only in the Swiss financial services and luxury goods sectors, but in the Swiss M&A market generally.
The outlook for the end of 2012 and the beginning of 2013 looks both promising and challenging. That being said, the Euro zone crisis still remains unresolved and a lifting the veil of economic uncertainty seems questionable; some executives seem thus still hesitant to carry out M&A transactions. According to M&A Quarterly Switzerland Report from E&Y, chances are likely that companies with cash reserves will become reluctant to use such reserves to execute transactions and instead will reduce debt balances or retain liquidity for further difficult economic moments.
On the domestic parquet and from a regulatory point of view, Swiss corporate law has been revised by the Swiss parliament. But since the new law adopted in March 2012 has been conceived as a counterproposal to the so-called Minder Initiative on excessive pay (imposing much stricter corporate governance rules), it will only become effective (subject to a possible referendum) if the Minder Initiative is rejected in a popular vote to be held in March 2013. Should this be the case, the new law is expected to take effect by mid-2013 or - more likely - at the beginning of 2014. Should, however, the Minder Initiative be accepted by the popular vote, its contemplated amendments to Swiss corporate law are likely to influence M&A activities in Switzerland in a rather unpredictable way.
However, despite the economic and political issues in Europe and Switzerland, the continued strength of the Swiss Franc might provide further incentives to Swiss acquirers to invest in cross-boarder transactions and the Swiss economy is still showing signs of growth. Therefore, M&A transaction opportunities are likely to be found in Switzerland as well in 2013 by those who are willing and able to take advantage of the current economic environment.