SNB Abandon of the Euro Cap – Effect on Swiss M&A markets

in Advisory, 27.01.2015

The Swiss franc soared heavily after the Swiss National Bank (SNB) decided to scrap its long-standing cap on the strength of its currency. The abrupt move left investors with heavy losses, as Swiss companies saw their stocks tumble and Swiss CEOs and CFOs desperately trying to assess the impact of this move on their accounts and their companies’ profitability.

But as a matter of fact, many Swiss corporates have been and still are sitting on piles of cash for which profitable use is looked for. As corporate cash has been unable to fetch much interest, some companies were talking very openly to markets and investors about possible ways to use their cash. Acquisitions were one of the often mentioned options for growth, and after the SNB announcement for many Swiss corporates potentially are now even the only option.

Swiss companies as acquirers

As we have seen over the years, outbound investment by Swiss companies have regularly out-paced inbound M&A activity. The strengthening of the Swiss Franc against all major currencies thus will make strategically relevant acquisitions abroad significantly cheaper. It is important to say that the FX benefit alone should not be the driver to make such investments, but may accelerate decision making on previously considered strategic moves.

We do believe that the combination of the currency developments and the low or negative yield on cash creates a strong incentive to invest and after a certain time of disorientation will over time be pushing the M&A activity of Swiss corporates further.

Swiss companies as targets

At the same time, from point of view of international acquirers, the SNB decision has a not to be underestimated impact. Swiss companies which are negatively affected by the currency developments in their margins and therefore have lost value can be highly interesting targets for international acquirers that are capable to take costs out of such target companies by integrating it to their own global platform. Such acquirers could end up with a good deal now. However, Swiss companies will try to avoid selling, if such adaptions can be done on stand alone basis and in decent time frame.

Summary

Overall, in the Swiss corporate middle market, it is to be expected that the availability of cash and the urge for growth in combination with an increased vulnerability driven by currency impact on margins profile leading to lower equity market prices, will effect in a very dynamic Swiss M&A activity.

 

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