The year of opportunistic mid-market deals

The M&A year 2023 in Europe was restrained in terms of the number of transactions and volume. This was due to global concerns about a possible recession, rising inflation, impending interest rate increases, and global geopolitical tensions. These uncertainties posed significant challenges for players in the M&A market. Particularly, 2023 was especially demanding in terms of the conditions for transaction financing, making transactions more complex and time-consuming.

In this environment, well-financed strategic investors, in particular, seized their opportunities. They focused on acquisitions for business model transformation and to ensure future growth. In contrast, private equity buyouts and exits decreased significantly.

In transactions involving Swiss target companies, the volume decreased significantly compared to the previous year, i.e., there was a focus on mid-market deals. The higher financing costs, especially for foreign buyers, made larger M&A transactions with significant debt financing less attractive. However, in terms of acquisitions abroad by Swiss companies, the volume increased for the largest transactions. This is partly due to the strong Swiss Franc and comparatively favorable financing conditions in Switzerland.

Accordingly, fewer mega-deals were completed in 2023. By mega-deals, we mean deals with a transaction value of over USD 10 billion. The only mega-deal observable in Switzerland was the spin-off of Sandoz by Novartis completed in 2023.

In addition to the lower transaction volume, Switzerland also saw significantly fewer transactions involving Swiss participation in 2023.

In the first half of 2023, the transaction volume was relatively high thanks to larger deals, while the number of transactions remained at a similar level as the previous year. The most prominent transaction was certainly the acquisition of Credit Suisse by UBS in the first quarter, which received considerable media attention (deal volume of USD 3.2 billion). In the second half of the year, M&A activities in Switzerland (as well as in Europe) significantly decreased. Numerous transactions were postponed or even suspended. This restraint affected all sectors.

In summary, despite the relatively good economic situation and lower inflation, M&A activities in Switzerland decreased compared to the previous year. As in Europe, the macroeconomic conditions (recession fears, interest rate levels, inflation) and global geopolitical uncertainties had a negative impact on M&A activities.

Swiss M&A Trends 2023: Technology, Energy Transition, and Public-to-Private in Focus

Many companies from different sectors are increasingly implementing their transformation strategies through smaller, targeted M&A transactions to keep up with rapid change, adapt their business models, and gain competitive advantages.

The TMT sector remains a hotspot for M&A activities in Switzerland. Software companies, as in previous years, accounted for the majority of deal activity and continue to be attractive M&A targets. The advancing digitalization and the need for innovative technology solutions drive transactions in this sector. Companies are recognizing the opportunities of disruptive technologies and artificial intelligence, increasingly focusing on strategic acquisitions to enhance their technological competencies, strengthen their market position, and meet the challenges of digital transformation. This often involves adapting their business models. Thus, we are currently seeing many companies from other sectors acquiring TMT companies to strengthen their product-related technological competencies.

The TMT sector also remains attractive to private equity investors, due to high returns and stable cash flows. The high number of potential TMT target companies makes the Swiss market attractive for foreign buyers.

In 2023, IFBC supported several transactions in the TMT sector:

• IFBC assisted the board of directors of Crealogix (software) as an independent financial advisor with a fairness opinion to assess the financial appropriateness of the public purchase offer from Vencora UK Limited, an indirect subsidiary of the Volaris Group Inc. and Constellation Software Inc., an internationally active provider of software and services listed in Toronto (Canada).
• We acted as the exclusive financial advisor to the shareholder of the Institute for Educational Evaluation Zurich (software) in its sale to Trifork, which has been listed on the Nasdaq Copenhagen since 2021.
• IFBC supported Netcetera (software) and the owners of Braingroup (software) in the acquisition of a majority stake in Braingroup by Netcetera, in which the German technology company Giesecke+Devrient holds 60% of the shares.

In addition to digital transformation, the increasing importance of sustainability and decarbonization, particularly in the context of the Clean Energy Transition, significantly shapes M&A activities in Europe and Switzerland. Thus, companies are attempting to meet the requirements of a more sustainable future through targeted M&A transactions.

In Switzerland, an example of this trend was the acquisition of the Helion business unit specialized in solar/PV, heat pumps, and e-mobility from Bouygues E&S InTec Switzerland by the AMAG Group in September 2022. This strategic acquisition gives AMAG access to new business fields, positions the company for the long term in the area of sustainability, and enables it to advance its climate strategy. (see also the interview with Martin Meyer, CFO of the AMAG Group)

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In 2023, IFBC implemented various transactions related to the Clean Energy Transition:

• IFBC advised CKW on the sale of a majority stake in the power company EWA to the Uri public sector.
• IFBC supported Energiedienst Holding in the complete acquisition of Energieversorgung Südbaar in Germany.
• We accompanied the owners of the Suter Group AG in their sale to Heizkurier GmbH, a portfolio company of the German Nord Holding.
• IFBC acted as the exclusive financial advisor to the private equity investor CGS and the other owners of R&S in their sale to VT5, a SPAC listed on the SIX Swiss Exchange.

Market uncertainties and rising interest rates have had a partially negative impact on stock market valuation levels, creating opportunities for public takeovers. In 2023, a total of six public takeover offers were launched in Switzerland, with the one from Liontrust for the shareholders of GAM failing. Characterizing the other five transactions, it is noticeable that in three takeovers, the target company had a larger shareholder or a group of shareholders (Schaffner, Crealogix, and Von Roll), in the case of Datacolor, the major shareholder itself made a takeover offer, and in the case of the second public takeover offer concerning GAM, a partial offer was made. The number of public takeover offers in 2023 increased compared to the previous year, although the transaction volume decreased significantly. This fits with the previous statements and the trend towards mid-market deals instead of mega-deals.

In the area of public takeovers, IFBC can also look back on a successful 2023. IFBC supported the boards of directors of Crealogix, Datacolor, GAM, and Von Roll as a fairness opinion provider with an independent assessment to evaluate the financial appropriateness of the offer price.

Conclusion

The major uncertainties driven by macroeconomic factors and the geopolitical situation at a global level negatively influenced M&A activities in Europe and Switzerland in 2023. However, well-positioned buyers still found attractive transaction opportunities, especially in the mid-market segment.

In a year marked by challenging financing conditions, M&A proved to be an indispensable element for strategy implementation with a focus on growth, repositioning, and long-term success.

Despite the challenges and a declining number of M&A transactions, IFBC can look back on an extremely positive year 2023. We supported our clients in successfully implementing their acquisition strategies or in selling their companies to new ownership.

For 2024, we expect an increase in M&A activities. Private equity investors will reinvest their financial resources more actively and also divest existing holdings. In addition, we expect portfolio streamlining through carve-outs and spin-offs by corporations. Supported by the overarching trends of decarbonization, de-globalization, and digitalization, small and mid-market deals will continue to invigorate M&A activities in the new year.