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 2.1% as of December 2022), a skilled workforce and well-developed infrastructure, including reliable public transport. In 2022 Switzerland was, for the twelfth 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 start-up 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 a still liberal investment control regime). Exceptions apply for certain industries and sectors (eg, 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 activities are subject to the Lex Koller which also applies to Swiss companies who are ultimately owned by non-Swiss citizens. Further, even though 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 legislator has worked out a reform of the Federal Act on Data Protection, which will come into force on 1 September 2023.

On 1 January 2023 the long-awaited reform of Swiss corporate law entered into force, which leads to increased flexibility in various areas and the strengthening of minority rights. Noteworthy changes include the following:
(i) the share capital of Swiss stock corporations no longer has to be denominated in CHF, but can alternatively be in EUR, USD, GBP or JPY, provided the respective currency is the functional currency of the business and the reporting currency used in the financial statements;
(ii) the authorised capital is replaced by the concept of a capital band which means that the shareholders' meeting can authorise the board to increase and/or reduce the share capital within a predefined bandwidth of up to 50% of the share capital upwards and downwards during a maximum period of five years;
(iii) the rules regarding intended acquisition in kind are abolished, making incorporations and capital increases faster and more cost-efficient;
(iv) interim dividends are now explicitly permitted under the new law;
(v) shareholders' meetings can now be held in a number of ways (ie, normal physical meeting, physical meeting concurrently at several locations with electronic transmission between such locations, physical meeting with remote participants exercising their rights electronically, entirely virtual meeting, and written shareholders' resolution in wet ink or electronic form);
(vi) several (partially new) options are now available to hold board meetings and pass resolutions (ie, normal physical meeting, physical meeting with remote members exercising their rights electronically, entirely virtual meeting, and written resolution in wet ink or electronic form); and
(vii) the new law provides for amplified minority rights and the list of shareholder resolutions requiring a supermajority (ie, affirmative vote of two thirds of the represented voting rights and more than half of the represented share capital) has been expanded.

Certain businesses will have to comply with the new ESG reporting criteria, depending on their size and significance. Swiss companies that are of public interest are required to publish an annual ESG report that takes non-financial factors into account. The report covers non-financial topics such as corporate strategy, emerging dangers to the environment, personnel, and human rights, as well as the efforts the organisation has taken. Companies subject to ordinary audit and active in the exploitation of certain commodities must prepare a report regarding payments to governmental bodies. Larger companies with minimum 250 FTE and either a balance sheet exceeding CHF20 million or revenues exceeding CHF40 million must prepare an ESG report and have it approved by the board and the shareholders' meeting. Companies (i) importing or processing commodities from conflict regions or (ii) offering products or services which are under suspicion of having produced or involving child labour must implement a management system regarding their supply chain, assess risks and have compliance with their duties of care reviewed by an external expert.

Activity on the Swiss M&A market remains strong. The recovery in deal activity after the first lockdown in 2020 continued throughout 2021 and 2022. However, the negative movement on the stock markets, the prospects of runaway inflation, fears of recession, Russia's invasion of Ukraine, and further geopolitical risks dampened the risk appetite of M&A investors. The total M&A deal activity for the year 2022 was slightly lower than in 2021. Swiss small and medium-sized enterprises (SMEs) continued to be attractive targets for investors in 2022, especially for European buyers. 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 merger between the Dutch chemical company Royal DSM and the Swiss flavours and fragrance group Firmenich which marked the biggest transaction in 2022, the acquisition of the Swedish tobacco manufacturer Swedish Match AB by Philip Morris International for around USD17.4 billion and the public tender offer made by Femsa, a Mexican retail chain, for all publicly held registered shares of Valora Holding AG. Notable private equity deals in 2022 included the increased investment by Partners Group in watchmaker Breitling and the acquisition of ATP adhesive systems by Arsenal Capital Partners. These transactions and activity levels are prime examples of the attractiveness of Swiss companies for foreign investors.

Despite the above-mentioned uncertainties, we generally expect the Swiss M&A markets to continue to be strong in 2023.