SWITZERLAND: An Introduction to Corporate/M&A

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 ranked, for the 11th time consecutive time, the world’s most innovative economy by the Global Innovation Index. Traditionally, Switzerland is most known for its banking and financial services sector as well as the chemical and pharmaceutical industry. Other sectors, including the industrial industry and commodities trading, also form an important part of the Swiss economy. Moreover, Switzerland is home to some newer industries such as fintech and medtech or (cloud-based) 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 – little used in practice – statutory transfers of assets and liabilities, are governed by the Swiss Merger Act.

Swiss M&A Market Trends 

Despite a worldwide slowdown in M&A activity, Switzerland experienced a very strong year in 2022, with around 650 Swiss-related transactions and a total deal volume of USD140 billion. The most active sectors were media and telecommunications, technology, manufacturing and pharmaceuticals/life sciences. The largest transaction, valued at around USD21 billion, was the takeover of Firmenich SA by Royal DSM.

Expectations for the Swiss M&A market in 2023 are still cautiously optimistic despite the war in Ukraine, inflation, rising interest rates and supply-chain issues. Thanks to the still impressive levels of dry powder held by private equity sponsors in the market, the Swiss M&A market is expected to remain strong but likely be subject to a cool-down compared to the record-setting 2022.

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, digitalisation 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 warranties and indemnities insurance solutions are still common. On the other hand, the importance of earn-out clauses or escrow mechanisms have decreased over the past years but seem to be making a comeback now. Additional trends, mainly resulting from the COVID-19 pandemic, are an increased focus on material adverse change clauses and interim covenants.

Important Changes in Corporate Law  

In general, Switzerland has a very investor-friendly regulatory framework; ie, 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.

As of 1 May 2021, bearer shares were abolished. Bearer shares that still existed on this date were automatically converted into registered shares – except in the case of listed companies or if the bearer shares were structured as intermediated securities. In addition, on 1 August 2021, certain amendments to federal law in connection with 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, “registered uncertificated securities” was introduced which allows for the tokenisation of securities.

In May 2022, the Swiss Federal Council published a draft law providing for an investment control regime. Following the country’s traditionally investor-friendly framework, the draft provides for investment control in connection with acquisitions 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 entities supplying security-relevant IT systems/services to authorities. At this stage, it is unclear if – and in what form – this draft legislation will be implemented.

As of 1 January 2023, a comprehensive revision of Swiss corporate law entered into effect. The general purpose was the modernisation of Swiss corporate law, including the revision of a wide range of new regulations, from gender quotas and transparency in the commodity trading sector to simplifying shareholders’ meetings. For instance, virtual meetings are now possible under certain conditions. Amongst other things, the concept of the “capital band” has been newly introduced, which is a combination of an authorised capital increase with an option for an authorised capital reduction. In addition, shareholders’ rights have been strengthened, inter alia, by lowering the thresholds to convene an extraordinary meeting or for placing items on the agenda.

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