SMEs fuelling the Swiss M&A market
A new study by Deloitte shows that around 80% of all transactions that occurred in Switzerland in 2013 involved SMEs
Whilst the large cap companies have remained relatively hesitant when it comes to transactions, Swiss Small and Medium Enterprises (SMEs) are more active, dominating the M&A market (in number of deals). SMEs have kept true to their status as the backbone of the Swiss economy. Swiss SMEs are not only attractive targets for foreign investors, but are also active purchasers in their home country. These are the results of the first Mid & Small Caps Study conducted by Deloitte in Switzerland.
159 M&A transactions targeting Swiss SMEs were completed in 2013 by foreign and domestic investors, representing roughly 80% of all the M&A transactions that occurred in Switzerland last year. In addition, 46 transactions were completed by Swiss SMEs abroad, leading the total number of transactions having involved a Swiss SME in 2013 to 205.
According to Jean-François Lagassé, Corporate Finance Partner and Head of Financial Advisory Services at Deloitte in Switzerland, the dynamics in the sector will remain unchanged in 2014: “Last year was a year of falling deal value in Switzerland, with large companies having adopted a ‘wait-and-see’ attitude, given the economic and political uncertainties in Europe and the US. This resulted in the absence of mega deals. Swiss SMEs, historically more active, have continued to be key drivers of the Swiss M&A market, a tendency which we feel will carry on strongly in 2014.”
European companies as strategic partners for Swiss SMEs
Amongst the inbound transactions (when a foreign company acquires a Swiss SME), Western European companies were the main buyers of Swiss SMEs, representing 57% of this category, followed by the US (25%) and Asia Pacific (10%).
Jean-François Lagassé explains: “Foreign investors emphasise the attractiveness of Swiss SMEs in terms of high quality services and products as well as innovations. As main advantages of Switzerland they point out the highly-skilled workforce, the flexible labor market, the central geographic location as well as the stability of the fiscal, political and economic environment. Switzerland also benefits from many SMEs that are global leaders in niche markets.”
Also, Swiss SMEs made 65% of their acquisitions abroad in Western Europe, taking positive advantage of the geographical and cultural proximity.
Valuation multiple reaches a new high point
As of the end of 2013, the Deloitte Mid & Small Caps Index – the first index to analyse the evolution of valuation of Swiss listed mid and small capitalisations through multiples – reached 8.9x EV/ EBITDA1, underlining the economic recovery that started in 2011. This constitutes a high point and represents the highest valuation multiple since December 2007. This trend reflects both the competitive positioning of Swiss SMEs and the focus on quality that investors are having, trying to invest in companies with a strong strategic positioning, where they can control their margins and are able to generate important cash-flows.
Outlook for 2014
Microeconomic and macroeconomic studies show that M&A positive trends for SMEs are expected to be sustained in 2014. In particular, valuations are expected to stay in line with the evolution witnessed last year. This positive trend is also confirmed by the Deloitte CFO Survey. The results of the Q3 2013 edition indeed showed that 56% of Swiss CFOs expected an increase in the M&A activity of their company for 2014, whereas only 4% expected a decrease. Swiss SMEs should therefore also benefit from this positive trend in 2014.
About the 2013 Deloitte Mid & Small Caps Study
The first Mid & Small Caps Study of Deloitte investigated the M&A transactions of small and medium-sized companies from January 2013 until November 2013. It also includes an outlook for the year 2014 as well as the Deloitte Mid & Small Caps Index. To meet Deloitte’s SME definition, companies had to fulfil three main aspects: Achievement of more than CHF 10 million in turnover, less than 250 full time employees and a market capitalisation between CHF 5 million and CHF 500 million. The geographical and business area classifications were defined by the core business and main location(s) of the target company.
About Deloitte in Switzerland
Deloitte is a leading accounting and consulting company in Switzerland and provides industry-specific services in the areas of audit, tax, consulting and corporate finance. With approximately 1,100 employees at six locations in Basel, Berne, Geneva, Lausanne, Lugano and Zurich (headquarters), Deloitte serves companies and institutions of all legal forms and sizes in all industry sectors. Deloitte AG is a subsidiary of Deloitte LLP, the UK member firm of Deloitte Touche Tohmatsu Limited (DTTL). DTTL member firms comprise of approximately 200,000 employees in more than 150 countries around the world.
Zurich, 26th of February
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