We are pleased to present the latest edition of our review of the M&A activity (divestments and acquisitions) of small and medium-sized enterprises (SMEs) in Switzerland, covering the year 2023. The report also includes an interview with Marco Martelli, Partner and Member of the Board, and Lea Grunder, Associate Director at Invision AG, who share their insights on their recent acquisition of NonStop Gym.
Globally, M&A activity declined in 2023, with the number of deals reaching their lowest point since 2005. This slowdown is reflected in the M&A activity of Swiss SMEs which experienced a 13.5% decline compared to the previous year.
This can be attributed to a substantial fall in the number of inbound transactions, which fell by 34.7% compared to 2022. Since mid-2022, however, outbound transactions increased by 25% in 2022 and by a further 1.3% in 2023.
Foreign investors are showing less appetite for Swiss targets
Currently, the appetite of foreign investors for Swiss targets is limited. Swiss SMEs business owners are hesitant about selling their companies and are increasing their acquisition activity abroad. The main factors influencing these developments are the resilience of the Swiss economy and the strength of the Swiss franc.
Private equity (PE) activity also slowed down considerably. There were 17 fewer deals overall involving Swiss SMEs (down by 18%) in 2023, and the number of Swiss SMEs bought by PE firms nearly halved compared to 2022.
Persistent headwinds for most of 2023
A total of 211 transactions involving Swiss SMEs took place in 2023, a decrease from 244 in 2022 (-13.5%), but still slightly above the average for the period 2013 to 2023. The drop in the number of inbound transactions (-34.7%) accounted for most of this decline. Of 140 international deals, 76 were outbound transactions (1.3% more than in 2022), driven by a strong Swiss franc.
(Domestic and inbound M&A transactions, excluding outbound deals)
Due to economic uncertainties, deal volume in Switzerland involving SMEs (135 divestments) fell by 20% compared to 2022.
Switzerland braced for economic headwinds
According to the most recent Deloitte CFO Survey, Swiss CFOs perceive a shift in economic and corporate outlook. The initial optimism in the first half of 2023 cooled down, leading to a gloomier view of the Swiss economy and its major trading partners. Key concerns included weak demand, skills shortages and inflation. Corporate risk management focused on these areas, and cybersecurity was also a significant concern. Despite this, most CFOs remain optimistic about their company's financial prospects and revenue.
In both 2021 and 2022, we witnessed M&A records in terms of the number and value of Swiss transactions. However, in 2023 dealmakers became cautious, leading to a substantial decline in M&A activity. Valuations experienced a decline until mid-2023 but have since recovered and stood at an EV/EBITDA ratio of 8.9x at the end of the year.
The Swiss State Secretariat for Economic Affairs anticipates modest economic growth of 1.1% in Switzerland in 2024, well below historical averages. Various factors, both long-term and cyclical, contribute to this restrained recovery, including the delayed effects of the pandemic, the conflicts in Ukraine and elsewhere, and their effects on investor sentiment. Additionally, cyclical factors are hindering the recovery, such as the impact of monetary policy tightening to reduce inflation and the withdrawal of fiscal support amid high levels of debt. Despite these challenges, Switzerland is expected to return to a more normal growth rate of 1.7% in 2025.2, 3
The Swiss M&A market shows signs of potential resurgence in 2024, with stakeholders maintaining optimism about forthcoming opportunities. This optimism is driven in part by improving macroeconomic and political conditions, and an end to interest rate uncertainty.
Private equity is also under pressure to become more active, both on the sell-side, divesting long-term assets, and on the buy-side, armed with substantial amounts of "dry powder" for investment. Access to debt financing has improved in recent months, further contributing to the anticipated rebound in private equity activity in 2024.
There is an expected catch-up effect in 2024, involving M&A projects postponed from 2023. Even if only a portion of these materialises, mergers and acquisitions in Switzerland are poised to regain momentum.
1 The Deloitte CFO Survey Switzerland, 2023
2 Swiss State Secretariat for Economic Affairs (SECO)
3 International Monetary Fund (IMF)
We are grateful to Lutfi Sadiku and Coline Astoul for their valuable inputs to this report.