Timo Knak talks about the growing importance of private equity in the M&A business and reveals the M&A trends he expects to see in the near future.
From an M&A perspective, 2018 was an excellent year. Swiss companies and private equity firms set a new record over the course of the year with 493 transactions. Compared to the previous year, the number of transactions with Swiss involvement experienced another sharp rise of around 25%. That’s huge! While the transaction volume also increased substantially over 2017, from USD 102 billion to USD 133 billion, it still fell short of the record set in 2014. Taken together, these developments attest to the fact that the overall situation for Swiss companies is both healthy and stable.
Swiss companies have been doing their homework since the crisis years of 2008 and 2009. In response to those financial crises, the companies have repositioned themselves and made adjustments to both their financial structures and their strategic alignment. That has ushered in a corporate landscape that is even more competitive and stronger than ever before.
The pharmaceutical and life sciences industry, the financial industry and the industrial sector. The largest number of transactions took place in the industrial sector (88 deals). The transaction volume was highest in the pharmaceutical and life sciences industry where deals totaled nearly USD 29.5 billion. The technology, media and telecom sector and the financial sector were also extremely active with 68 and 62 transactions, respectively.
No, nothing of the sort: Swiss companies actually make more acquisitions abroad than vice versa. Swiss companies acquired 230 foreign firms, for example, whereas foreign firms only purchased 117 companies in Switzerland. Of these cross-border transactions, where either a Swiss buyer acquired a company in a foreign country or a foreign company took over a Swiss company, North America and Western Europe were involved in around 80% of the deals, making them Switzerland’s most important M&A partners. This global M&A strategy has enabled Swiss companies to successfully strengthen their already strong global position.
Private equity (PE) is playing an increasingly important role in company mergers and acquisitions. PE deals peaked at 160 transactions in 2018, the highest number ever recorded since these statistics were first compiled in 2007. Plus, not only the number of deals with private equity involvement but also the percentage of transactions involving a PE firm has peaked at 32%, the highest level since 2007. This underscores the ongoing strength of the Swiss PE community and international PE firms’ great interest in Swiss investments. The growing influence of private equity is underpinned by a persistently low interest rate environment with correspondingly cheap financing terms. Private equity funds, on the other hand, are profiting from successful fundraising efforts which are giving them the enormous liquidity – also known as dry powder – they need to make new investments.
With their bundled business know-how and long-term mindset, I’m convinced that the importance of private equity firms in the M&A business will continue to grow. Given the growing importance of this asset class and its popularity among investors, I expect private equity funds to have access to an increasingly large pool of investment capital and for this to strengthen the presence of private equity houses.