SWITZERLAND: An Introduction to Corporate/M&A

Switzerland, despite its modest geographic size, continues to set global benchmarks in economic excellence. The nation is renowned for its political stability, disciplined fiscal approach, and regulatory framework that fosters a business-friendly environment. These attributes make Switzerland a preferred destination for international enterprises and investors alike.

In 2024, Switzerland was ranked as the world’s most innovative economy for the 14th consecutive year by the Global Innovation Index (GII), highlighting its consistent leadership in research, development and technology adoption. Switzerland’s economy is characterised by its diversification and global competitiveness. Traditional sectors, such as banking and financial services, alongside the chemical and pharmaceutical industries, remain key contributors to the country’s economic strength. The industrial sector and commodities trading also play vital roles in Switzerland’s economic landscape. In recent years, Switzerland has also emerged as a leader in fintech, medtech and cloud-based software development, reflecting its adaptability and forward-thinking economic policies. In 2024, Switzerland achieved its highest-ever ranking in the IMD World Digital Competitiveness Index, securing second place among 67 economies.

Politically, 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, while tax, public law and educational matters fall within the competence of each canton. Switzerland has adopted a direct democracy system, allowing its citizens to directly vote on the enactment of federal laws or amendments to the constitution.

Key Legal Framework 

The primary source of law for private M&A transactions (whether share or asset deals) is the Swiss Code of Obligations. Since many of its provisions are non-mandatory, parties in Swiss private M&A transactions benefit from significant contractual freedom, allowing for tailor-made solutions.

Public M&A transactions are governed by the Swiss Financial Market Infrastructure Act (FMIA) and its respective ordinances. Unlike private M&A transactions, the FMIA provides less flexibility for the involved parties, with the Swiss Takeover Board overseeing the transactions, particularly reviewing the offer documentation and the actions taken by the parties involved.

Additionally, mergers and demergers by public or private companies, as well as the rarely used statutory transfers of assets and liabilities, are regulated by the Swiss Merger Act.

Swiss M&A Market Trends 

In 2024, global economic conditions, including geopolitical tensions and energy market fluctuations, posed significant challenges. GDP grew modestly by around 1%, continuing the trend of underperformance from 2023. However, annual average inflation declined to 1.1%, offering some relief to consumers. With inflation under control, the Swiss National Bank (SNB) reduced interest rates four times in 2024.

Amid this economic backdrop, the first half of 2024 saw a significant decline in M&A transactions, but the second half experienced a recovery, reaching levels comparable to 2023. According to KPMG, the total number of deals involving Swiss businesses slightly decreased to 464, a 4.1% decline from 2023. Aggregate deal volume was moderate, but the third quarter saw a significant boost, with deal volume reaching USD115.1 billion, one and a half times the 2023 figure (USD72.2 billion).

The most active sectors were Technology, Media, and Telecommunications (TMT), industrial markets, and life sciences and healthcare. The private equity sector saw a slight recovery with 122 transactions in 2024, up from 112 in 2023. According to KPMG, private equity investors accounted for 27% of all transactions related to Switzerland, highlighting their continued importance as a key buy-side group and driver of the Swiss M&A market.

Although deal volume remained similar to 2023, the market appears to be stabilising as interest rate hikes have ceased and inflation is under control. With record-high levels of deployable capital and improving market conditions, private equity transactions are expected to increase in 2025. Sponsors are more willing to transact at current market valuations, supported by solid credit and equity capital markets.

The two predominant consideration structures in Switzerland are the locked-box mechanism and the net working capital/net debt adjustment as per closing. In the seller-friendly environment, the locked-box mechanism has been widely used to provide price certainty to sellers. However, the market is shifting towards a more balanced approach. Locked-box pricing mechanisms are often combined with interest payments or cash flow participation for the period between the locked-box date and closing.

Earn-outs and vendor loans have become less common but are still used, particularly when the seller remains an employee post-closing, subject to Swiss tax-law restrictions.

The use of warranty and indemnity (W&I) insurance in private M&A transactions has increased significantly in Switzerland. Buyer-side policies are predominantly employed to bridge the “liability gap” when sellers cap their liability at levels deemed insufficient by buyers.

ESG issues are increasingly impacting M&A activities. With better data and measurement tools, market players can now understand ESG’s impact on valuations, targeting, portfolio management and other aspects of the M&A lifecycle. ESG has evolved from an occasional focus to a consistent consideration in M&A activities. Starting in 2024, Swiss listed companies must submit non-financial reports for shareholder approval. This requirement, stemming from amendments to the Swiss Code of Obligations, compels large public interest companies to disclose information on ESG matters, including human rights and anti-corruption efforts. Additionally, Swiss companies must conduct due diligence on their supply chains, particularly regarding conflict minerals and potential child labour risks. These obligations require annual compliance reports, with the first due in 2024 for the 2023 business year.

Regulatory Developments

Switzerland has a very investor-friendly regulatory framework – ie, generally no investment control measures are currently in place. Foreign direct investment (FDI) controls only apply to certain industries and sectors, for example, banking and real estate. In addition, several business activities require a governmental licence, such as aviation, telecoms, radio and television, and nuclear energy. On 15 December 2023, the Federal Council adopted the dispatch on new legislation regarding investment screening. Under the new draft legislation, investment screening is intended to apply only when a foreign state-controlled investor takes over a domestic company that operates in a particularly critical area, such as electricity grids and production, water supply and transport infrastructure. This means that the takeover of Swiss companies active in such critical areas by a foreign state-controlled investor would need an approval, subject to reaching certain turnover thresholds. Interestingly, the Federal Council has so far been opposed to introducing new FDI control regulations, so that the scope of the draft is narrower compared to similar legislation in other jurisdictions. It will be interesting to follow further discussions on the topic as the legislative process advances in Switzerland against the backdrop of increasingly protectionist tendencies abroad. For now, the regulatory environment regarding investment screening in Switzerland remains favourable for investors.

As part of the Swiss corporate law reform, which came into force on 1 January 2023, new legal provisions have been introduced that provide opportunities for the flexible structuring of M&A transactions. In particular, interim dividends are now explicitly permitted under Swiss law, and allow the avoidance of “cash for cash” payments so that liquidity management after the acquisition can be improved. In addition, a capital fluctuation band can now be introduced, allowing the board of directors to increase or reduce capital within a certain range. This enables the board of directors to issue shares as acquisition currency. Two years have now passed since the implementation of the reform and the end of the transition period. Companies must have adapted their statues to the revised Swiss company law by 31 December 2024. After this transition period, any provisions that conflict with the new regulations will automatically become invalid and be replaced by the statutory provisions. It is highly advisable for companies to review and update their statutes to ensure they comply with current legal requirements.

On 1 August 2024, the AI Act came into force in the EU. It is the first-ever legal framework on AI that aims to provide AI developers, deployers and users with clear requirements and obligations regarding specific uses of AI systems by adopting a risk-based approach (eg, the higher the risk of an AI system, the stricter the rules that apply to its development and deployment) and by introducing rules for so-called general purpose AI models. The AI Act will have an extraterritorial reach and will not only be applicable to a Swiss company that makes an AI system available in the EU market, but will also apply if the output generated by the AI system of a Swiss company is used in the EU. At the end of 2023, the Federal Council instructed the relevant federal department to prepare a report on the possible regulatory approaches to AI systems for Switzerland that are particularly compatible with the AI Act and the Council of Europe’s AI Convention, which should create the basis to issue a concrete mandate for a Swiss AI regulatory proposal in 2025.