SWITZERLAND: An Introduction to Corporate/M&A

Switzerland: Corporate / M&A Overview 

Authors: Marco Toni / Andreas Hinsen, Loyens & Loeff Switzerland

Introduction to Switzerland 

Even though Switzerland is a rather small country, it is home to one of the most advanced and competitive economies in the world. The country’s political stability and a strong tradition of fiscal discipline, combined with a business-friendly regulatory environment make Switzerland a preferred target for international enterprises and investors. In 2022, Switzerland was once again ranked the world’s most innovative economy by the Global Innovation Index for the 11th time consecutively. Traditionally, Switzerland is most known for its banking and financial services sector as well as the chemical and pharmaceutical industry. Other industrial sectors including the watch industry or commodities trading sector also form an important part of the Swiss economy; Switzerland actually exports more coffee than chocolate or cheese. Moreover, Switzerland is also home to some newer industries such as fintech and medtech or (cloud) software development.

On a political level, Switzerland is divided into 26 cantons and more than 2,000 communes. Typically, civil and criminal matters, including corporate and securities laws, are subject to federal laws, with tax, public law or educational matters falling within the competence of each canton. Switzerland has adopted a direct democracy system with its citizens being able to directly vote on the enactment of federal laws or amendments to the constitution.

Key legal framework 

The main source of law for private M&A transactions (for share or asset deals) is the Swiss Code of Obligations. Since many of its provisions are non-mandatory, the parties in Swiss private M&A transactions benefit from a large freedom of contract that allows for tailor-made solutions.

Public M&A transactions are subject to the Swiss Financial Market Infrastructure Act (FMIA), together with the respective ordinances. Other than in private M&A transactions, the FMIA leaves much less room for the parties involved, with the Swiss Takeover Board supervising the transactions and in particular reviewing the offer documentation as well as the actions taken by the involved parties.

Further, mergers and demergers by public or private companies, as well as the in practice little-used statutory transfers of assets and liabilities, are governed by the Swiss Merger Act.

What are the trends in the Swiss M&A market?

Despite the COVID-19 pandemic, 2021 was the best year on record for global M&A activities and 2022 started with an all-time high for the M&A market. In line with this global trend, Switzerland experienced a record year for M&A in 2021, with the number of transactions almost doubling compared to 2020. The most active sectors were media and telecommunications, manufacturing and pharmaceuticals/life sciences.

In Q1 2022, EMEA M&A value fell by 27% compared to Q1 2021. Nevertheless, Q1 2022 seemed to have lived up to the positive predictions on market activities in Switzerland. However, the effects of the war in Ukraine, inflation, raising interest rates and supply-chain issues on the Swiss M&A market are still unclear. Thanks to the still impressive levels of dry powder by PE sponsors in the market, it is expected that the M&A market in Switzerland will remain strong but likely be subject to a cool-down compared to the record-setting 2021.

While the first Swiss SPAC was only incorporated in the first quarter of 2022 after a change in the listing rules of SIX Swiss Exchange, the SPAC trend so far has been mainly visible with foreign SPACs being active in looking for targets in Switzerland. Other trends include the focus on ESG, digitalization and the need to act fast and provide creative solutions in the still seller-friendly market. As a result, locked-box mechanisms, combined with little, if any, conditionality and W&I insurance solutions are increasingly common. On the other hand, the importance of earn-out clauses or escrow mechanisms have decreased over the past years but seem to make a comeback now. Additional trends, mainly resulting from the COVID-19 pandemic, are an increased focus on MAC clauses and interim covenants.

Important changes in corporate law over the last year

In general, Switzerland has a very investor-friendly regulatory framework, i.e. no investment control measures are in place (yet). Notable exceptions are transactions in the banking, insurance, healthcare and media and telecommunications sectors, where certain restrictions apply. Similarly, the acquisition of non-commercial real estate by foreigners in Switzerland is restricted.

The most notable changes in corporate law include the abolition of bearer shares as of 1 May 2021. On this date bearer shares that were still existing were automatically converted into registered shares – except in the case of listed companies or if the bearer shares are structured as intermediated securities. In addition, on 1 August 2021 certain amendments to federal law in connection with the distributed ledger technology (DLT) entered into force. These amendments allow the licensing of DLT trading facilities and clarify the segregation of digital assets in the event of bankruptcy. Further, a new class of securities, the "registered uncertificated securities", was introduced which allows for the tokenization of securities.

Expected upcoming changes 

On 1 January 2023, a comprehensive revision of Swiss corporate law will enter into effect. The general purpose thereof is the modernization of Swiss corporate law, which means that the revision contains a wide range of new regulations, from gender quotas and transparency in the commodity trading sector to simplifying shareholders’ meetings. For instance, virtual meetings will be possible under certain conditions. Amongst others, the concept of the “capital band” is introduced, which is a combination of an authorized capital increase with an option of an authorized capital reduction which was not previously permitted under the existing statutory provisions. In addition, shareholders’ rights will be strengthened, inter alia through lowering the thresholds to convene an extraordinary meeting or for placing items on the agenda.

In May 2022, the Swiss Federal Council published a draft law providing for an investment control regime. Following the traditionally investor-friendly framework, the draft provides for an investment control in connection with acquisition by state-owned or state-related foreign investors and in certain safety-critical sectors, such as the defence industry, energy and water supply sectors and the entities supplying security-relevant IT systems/services to authorities. At this stage, it is unclear if – and in which form – this draft legislation will be implemented.

Finally, as of September 2023, the new legislation on data protection will enter into force, improving the protection in case of processing of personal data and aligning with the GDPR requirements.