M&A activities were down slightly in 2019 on the heels of a record-breaking year in 2018. The Swiss economy reported 402 deals worth a total of around USD 127 billion last year, with two thirds of that amount attributable to the ten largest mergers and acquisitions. Activity was particularly brisk in the life science and pharmaceutical industries and the industrial and TMT sectors. The importance of post-merger integration is on the rise.
The past year saw the merger and acquisition business cool down somewhat compared to the record-breaking year posted in 2018. The number of transactions with Swiss involvement dropped from 493 to 402; the transaction volume also declined to USD 127 billion (2018: USD 133 billion). This is one of the insights revealed by KPMG’s annual Clarity on M&A study.
Players appeared cautious in the first quarter of 2019, in particular, with 79 transactions reported during this period. A lower quarterly figure was last seen in early 2017 (74 deals). At the same time, however, last year’s first-quarter transaction volume came to a total of around USD 57 billion, the highest level in five years. This was mainly attributable to Alcon’s spin-off from Novartis, which at USD 31 billion was the largest deal of the past year.
In 2019, the ten largest transactions accounted for some 65 percent of the total transaction volume (2018: 47 percent) and were driven primarily by the activities of the two pharmaceutical groups Novartis and Roche. In fact, Novartis contributed around a quarter of the total transaction volume in 2019 through the spin-off of its eye care division (Alcon Inc.) alone. Roche also reported a major deal with its acquisition of Spark Therapeutics Inc. for over USD 4 billion. All in all, the life science and pharmaceutical industries were responsible for around USD 65 billion – or half – of the total transaction volume reported in 2019. The USD 10 billion deal between Nestlé Skin Health and a consortium consisting of the private equity company EQT and the Abu Dhabi Investment Authority (ADIA) also contributed significantly to this amount.
The industrial sector and the TMT sector (technology, media and telecommunication) were key driving forces in the M&A business, both in terms of transaction volumes and the number of transactions. The industrial sector, for instance, reported the largest number of transactions (73), even ahead of the pharmaceutical and life science industries (65). ZF Friedrichshafen’s acquisition of WABCO for USD 7.2 billion and the sale of Lafarge Holcim’s Philippines business to San Miguel for USD 1.9 billion deserve special mention. The transaction volume in the industrial sector came to a total of USD 11.6 billion in 2019. While the TMT sector may have reported fewer movements (54 transactions) than the industrial sector, its transaction volume came in slightly higher at USD 11.7 billion.
Swiss companies acquired significantly more foreign companies than vice versa again last year: Foreign companies were acquired by Swiss companies in 173 cases (43 percent of the transactions) and Swiss companies by foreign companies in 107 cases (27 percent of the transactions). “Swiss companies are extremely well poised to engage in mergers and acquisitions. They have high liquidity, robust balance sheets and a favorable financing environment,” explains Timo Knak, Head of Mergers & Acquisitions at KPMG.
The share of national transactions (Switzerland/Switzerland) has decreased year on year, with 63 deals accounting for 16 percent of all transactions in 2019 (2018: 19 percent). The number of foreign transactions with Swiss sellers, on the other hand, rose from 52 transactions in 2018 to 59 transactions in the past year.
The importance of systematic post-merger integration is growing: “Years of experience have shown that only around a third of all mergers and acquisitions have managed to fully measure up to shareholders’ expectations,” explains Andreas Besel, Partner Deal Advisory and member of the Global Strategy Group at KPMG. Accordingly, client demand for strategic advice on effective integration methods has risen sharply in recent years. Against this backdrop, KPMG Switzerland has quadrupled its team of strategy and integration specialists to 20 employees over the past four years, while some 150 strategy specialists are working in DACH countries to address the key integration-related issues that are crucial to success.
While major transactions can still be expected for the current year, M&A activities will continue to show a certain amount of restraint in terms of the number of transactions and their total volume due to ongoing economic, legal and political uncertainties. At the international level, these include the various trade disputes and Brexit, in particular. In Switzerland, the country’s unresolved relationship with the EU is likely to put a bit of a damper on M&A activities. Uncertainty also surrounds the degree to which the newly constituted Parliament will impact the merger and acquisition business. Particularly the discussion regarding a “Lex China”, which would establish state investment controls that govern company takeovers by foreign persons or entities, could significantly diminish the attractiveness of the Swiss market.