SWITZERLAND: An Introduction to Corporate/M&A

SWITZERLAND: An Introduction to Corporate/M&A

Switzerland's political system is based on federalism and direct democracy. The federal structure consists of three levels: the confederation, 26 cantons (states) and approximately 2,200 municipalities. The cantons enjoy broad autonomy in many areas such as taxes, public law and organization of the courts within the limits of federal law. On the other hand, legislation in the field of civil and criminal procedure and substantive laws, including corporate and securities laws, is predominantly a federal matter, as is most financial market regulation. In the Swiss system of direct democracy, the people are given a direct say in the legislative process to an extent which is unparalleled in most other countries.

Many factors make Switzerland an attractive place to do business and to live. Switzerland is a politically stable country with one of the highest per capita GDPs in the world. It is a prosperous and modern market economy with a low unemployment rate (around 2.5% as of February 2020), a skilled workforce and well-developed infrastructure including reliable public transport. In 2019, Switzerland was, for the ninth year in a row, ranked as the world's most innovative economy according to the Global Innovation Index.

Investors and businesses active in Switzerland benefit from a competitive and stable economy, a business- and innovation-friendly legal environment and an efficient and reliable judicial system, as well as one of the highest standards of living in the world (which helps to attract talents).

Switzerland ranks first in Europe and fourth globally for economic freedom, in particular due to its openness to foreign trade and investment. Switzerland is home to a strong and internationally-oriented financial market place and has a very strong start-up and blockchain landscape which attracts investors and workforce.

The regulatory environment is very investor-friendly in Switzerland. There are no general foreign investment restrictions in Switzerland based on national interests and applying irrespective of the industry sector which would impose general notification obligations to foreign investors. Exceptions apply for certain industries and sectors (e.g. banking, securities trading, insurance and real estate). The Federal Law on Acquisition of Real Estate in Switzerland by Non-Residents (Lex Koller) restricts the acquisition by foreigners of real estate properties that are not used for the permanent establishment of a trade, production or other business run in a commercial way, a craftsman's establishment or a free profession (non-commercial properties). In particular, residential properties not used for commercial properties are subject to the Lex Koller, which also applies to Swiss companies who are ultimately owned by non-Swiss citizens. Further, even if Switzerland is not a member of the European Union, European directives and regulation play an important role. GDPR is directly applicable to Swiss-based companies doing business in the EU.

The regime for the disclosure of the beneficial owner of shareholders acquiring, alone or in connection with third parties, more than 25% of the shares in a company was amended with effect from 1 November 2019. The amendments removed some of the uncertainty persisting under the old rules regarding the definition of beneficial ownership and clarified that where there is no beneficial owner (i.e. no natural person exercising direct or indirect control over the acquiring shareholder by analogy with the consolidation rules of Swiss accounting law) the shareholder must make a negative declaration to this effect.

In May 2019, Swiss voters adopted the Federal Act on Tax Reform and AHV Financing (TRAF) which entered into force on 1 January 2020, aiming at the abolition of the arrangements of status companies (holding, domiciliary and mixed companies), which are no longer accepted internationally. In order for Switzerland to remain an attractive business hub, TRAF includes new tax-related special arrangements for companies (e.g. the beneficial treatment of expenditures relating to research and development and a patent box) resulting in lower corporate taxes. Further, many cantons reduced their corporate income and capital taxes as of 2020 to ensure a similar taxation compared to the previous tax rates for privileged taxed companies.

In June 2019, the Swiss Federal Assembly adopted the Federal Act implementing the recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes, which will lead to the abolition of bearer shares in Switzerland for companies limited by shares. 

Another anticipated legal change is the revision of the Swiss company law which will introduce more flexibility with regards to company foundation and capital, improve corporate governance (for non-listed companies) and adapt the rules on companies limited by shares to the new accounting law.

The activity on the Swiss M&A market remains strong. After all-time record deal volumes in 2018, deal activity in Switzerland has only slightly declined in 2019. M&A deal flow and volume was in particular high in the chemicals, technology, media & telecommunication sectors as well as the pharmaceuticals and life sciences sectors, which even saw increases in transaction figures (both in terms of deal numbers and deal values). The most significant deals of the year were the acquisition of Nestlé Skin Health by a consortium led by Sweden-based private equity investor EQT and the Abu Dhabi Investment Authority for a total purchase price of approximately CHF10.2 billion and the public exchange offer by DSV A/S for all publicly held registered shares of Panalpina Welttransport (Holding) AG for approximately CHF4.6 billion. Seven IPOs took place in Switzerland in 2019. The biggest IPO was the listing on the SIX Swiss Exchange of Alcon AG, a spin-off of the eye care division of Novartis, with a market capitalization of CHF28.37 billion. Private equity investors were involved in almost half of the 50 largest deals involving Switzerland in 2019. These transactions and activity levels are prime examples of the attractiveness of Swiss companies for foreign investors.

Despite some uncertainties such as global trade disputes, potential (minor) increases of interest rates or high valuations, we generally expect the Swiss M&A markets to continue to be strong in 2020. However, with the worldwide outbreak of the coronavirus (COVID-19) and the uncertainty whether it is a (hopefully) short-lived tragedy, it is yet to be seen whether the activity on the Swiss M&A market will remain at the current high levels.

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