Back in 2011, the usually stable Swiss market was facing some stormy economic conditions. Due to increased uncertainly in Europe and the US, investors piled into the Swiss franc, causing it to appreciate massively – which meant that products from export-driven Switzerland suddenly became unattractively expensive. Not exactly a favourable scenario for GPs operating in the region.
Fast forward two years, and the situation has definitely improved, Swiss GPs say. “A few years ago there was a lot of fear at the [portfolio] company level that there was a need for cost cutting programs – including firing people – because of the slower export climate. This situation has totally stabilised,” says Christian Diller, a partner at Montana Capital Partners.
Nonetheless, deal flow shows no sign of accelerating; if anything, the reverse is true. So far this year, nine deals have been done with a total value of €818 million, compared to 21 deals worth €2.3 billion in 2012, according to data provider Dealogic. Europe’s lingering economic woes are one of the reasons why deal flow has been subdued.
“Private sellers remain reluctant to enter the market based on the economic uncertainties that have emerged again since mid-2012, and the volatile trading so far this year,” says Björn Böckenförde, founder partner and chief financial officer at Zurmont Madison (and head of the private equity ‘chapter’ of the Swiss Private Equity & Corporate Finance Association).
There have never been many mega deals around in the Swiss buyout market. One of the largest so far this year was EQT Partners’ acquisition of Swiss dental chain Swiss Smile in August – for €36 million. “Swiss Smile was attractive because it has a very interesting growth opportunity by consolidating the Swiss dental market,” says Michael Föcking, a partner at EQT.
What’s more, there are some very stable mittelstand companies in Switzerland, according to Markus Ehrler, a partner and head of the German office at debt advisory group Marlborough Partners. “Unless there are succession issues or substantial growth aspirations, there’s not always the need for them to look for outside money.”
Due to the relatively small average Swiss deal size, the three main banks – UBS, Credit Suisse and Zuercher Cantonal Bank – provide most of the buyout debt, according to Ehrler. However Marlborough, which opened an office in neighbouring Germany in July, expects a “healthy Swiss deal flow in the year to come”, he adds. “Both GPs investing in equity and banks and debt funds like to invest in the German speaking region. [And] the Swiss market has further potential for more bespoke financing structures.”
The trouble is that the Swiss buyout sector remains quite a private market – so tapping into it can be challenging, especially for outsiders, Böckenförde says. “The teams from international private equity funds – even those with local office presence like Equistone [and] Gilde – have more difficulties to source deals in Switzerland,” he says. “A strong network is a significant advantage – both for access to deals and for better grip on valuations.”