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 2,150 municipalities. The cantons enjoy broad autonomy in many areas such as taxes, public law and organisation 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 2022), a skilled workforce and well-developed infrastructure including reliable public transport. In 2021, Switzerland was, for the eleventh 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 second 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 startup and blockchain landscape attracting investors and workforce alike.

The regulatory environment is very investor friendly. To this day, 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 (this may potentially change as there is a legislative project in course concerning the implementation of still liberal investment control regime). 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, such as GDPR which is directly applicable to Swiss-based companies doing business in the EU. This has led to EU companies asking their Swiss business partners to be GDPR-compliant. Consequently, the Swiss law maker is working on a reform of the Federal Act on Data Protection, which is expected to come into force in mid-2022.

The regime for the disclosure of the beneficial owner of shareholders acquiring, alone or in concert 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.

As of 1 May 2021, bearer shares were largely abolished in Switzerland. Since the effective date, bearer shares are only permitted for listed companies or if the bearer shares are structured as intermediated securities. If companies had not converted their bearer shares into registered shares by 30 April 2021, they were compulsorily converted by law. Shareholders holding bearer shares and failing to notify the company about such bearer shares by 1 May 2021 are not allowed to be entered into the company's share register. As a consequence, the membership rights of these shareholders are suspended. However, such shareholders have until 31 October 2024 to be entered in the share register by court order. After this deadline, their bearer shares will become null and void.

In June 2020, the Swiss parliament passed a bill modernising Swiss corporate law, which seeks to update corporate governance by enhancing shareholder rights, facilitating company formation and increasing the flexibility of capital regulations. It also implements the provisions of the Ordinance on Excessive Compensation at legislative level, introduces gender equality guidelines in board of directors and senior management and imposes stricter transparency rules for companies in the commodity business. The new Swiss corporate law will enter into force on 1 January 2023.

Activity on the Swiss M&A market remains strong. The recovery in deal activity after the first lockdown in 2020 continued throughout 2021, which was a record year when it comes to deal count: 604 as opposed to 363 deals in 2020. M&A deal flow and volume was particularly high in the technology, media and telecommunication, and industrial markets as well as the pharmaceuticals and life sciences sectors. The most significant deals of the year were the buyback of Roche shares from Novartis for a consideration of approximately USD20.7 billion, the tender offer by CSL Limited for all shares in Vifor Pharma at a valuation of Vifor Pharma totalling USD11.7 billion and the merger of TX Markets and Scout24 which led to the creation of one of the largest digital companies in Switzerland. Five IPOs took place in Switzerland in 2021. The biggest IPO was the listing on the SIX Swiss Exchange of PolyPeptide Group, one of the world's largest independent contract manufacturers of therapeutic peptides for the pharmaceutical market, with a market capitalisation of CHF2.53 billion. Private equity investors were involved in almost a third of all deals that took place in Switzerland in 2021, such as in the minority acquisition of Breitling by Partners Group from CVC Capital Partners. These transactions and activity levels are prime examples of the attractiveness of Swiss companies for foreign investors.

Despite some uncertainties such as the Russia-Ukraine conflict, the fragile pandemic situation or looming increases of interest rates, we generally expect the Swiss M&A markets to continue to be strong in 2022.