Switzerland is a surprisingly ‘hot’ market for M&A activity. It is a market which sees many foreign investors who are attracted by the well-established regulatory regime, the high levels of market and corporate stability and the long-term growth seen by many Swiss companies. Chinese companies have been regular investors and other international conglomerates and private equity (PE) houses are also attracted by the market.
By contrast, Switzerland’s local companies tend to be small and family run (of over 550,000 companies, only a tiny percentage have more than 200 employees, and many companies are still owned by the founder families). Although there are a handful of large corporates, particularly in pharmaceuticals, chemicals and financial services, Swiss companies are often bought by international buyers, and as a result, much M&A activity is internationally driven and directed. With that said, some medium-sized firms are pursuing a buy-and-build strategy for growth and this, at a lower level, is helping local activity too.
While PE houses and corporate advisers are aware of the options for Warranty & Indemnity (W&I) cover, many corporate clients in Switzerland are not, and it often comes as a surprise to them to hear that there are insurance options available for deals.
The rapid growth of the M&A insurance market is illustrated by the fact that when I began my career at Liberty GTS in 2017, we only saw a small number of M&A insurance submissions per year. Those submissions are now regularly received and in high numbers: growing about fivefold in the last five years.
However, M&A insurance is still a rather new product in Switzerland, and there are only a few insurers who offer it. Local insurers tend to lack the specific regulatory licence to underwrite W&I cover (the Swiss regulator requires a dedicated underwriting and claims handling team to be located in the jurisdiction before authorising the product), while for cross-border deals, using an international insurer with underwriting teams in different jurisdictions who can scrutinise deal paperwork from a range of locations also makes a lot of sense. Liberty GTS benefits particularly from being able to accommodate the client’s needs regardless of whether the client is situated in Asia, America or Europe.
Clients, lawyers and advisers are all coming to appreciate the uses of M&A insurance, and this is driving increased use of W&I, although there is still room for further growth.
As an insurer, we are comfortable working on Swiss transactions because companies are generally well-run and the advisor community is both skilled and experienced. These two factors combine into top-quality due diligence reports, which provide significant comfort for our underwriters.
One wrinkle in Swiss transactions is the multilingual nature of the region. Our underwriters can, and do, deal with transactions led in English, French, German and Italian – it is the nature of the Swiss market, and something that all parties engaging in transactions in Switzerland need to be aware of. Buyers and sellers from the different regions of Switzerland have their own approach too – language is not the only difference, and this makes it an interesting market to be part of.
Currently the Swiss economy is in a strong position. It is growing and has barely been dented by COVID. The pandemic briefly slowed down transaction activity, but there has been a significant surge with high number of deals, many of which are auction-based reflecting the fact that there are multiple interested buyers. Low interest rates have brought cheap financing, and private equity has shown significant interest in the Swiss market. The busiest sectors currently are pharmaceutical, chemicals and IT service providers.
The Swiss M&A market is set for growth, and the M&A insurance market along with it. It is a market where there are almost always interested parties when a company is put up for sale. It is of little surprise therefore that both advisors and company owners are actively showing interest in M&A insurance to cover their transactions.