SWITZERLAND Trends and Developments Contributed by: Daniel Raun, Andreas Hinsen and Rashid Bahar, Advestra
tainty regarding the evolving tariff situations, accrued geopolitical tensions and fragmentation, as well as evolving regulatory regimes (including data protection, transparency registers and FDI controls), among other factors. An additional focus in M&A transactions will likely lie on due diligence, regulatory matters (includ - ing data protection) as well as IT and technological developments. Given the level of dry-powder and lower deal activity in recent years, an increase in private equity activity in the Swiss market is further expected. Recently, Switzerland has seen an increase in dis - tressed M&A and restructuring transactions. This trend is largely driven by the challenging economic environment: while benchmark interest rates have sta - bilised at a low rate, the overall constraint persists, in particular for highly leveraged borrowers who need to refinance in the short term. Accordingly, there has been increased interest in distressed M&A as part of a comprehensive restructuring in court and out- of-court. The Swiss legal framework supports such transactions to a certain extent through mechanisms such as pre-pack solutions, which allow for a court- sanctioned sale of (a part of) the business or certain assets. (Private) Deal Terms The Swiss (private) M&A market has been, and is expected to remain, a sellers’ market due to the com - petition for suitable targets, albeit less so than dur - ing the pandemic-fuelled activity in 2021 and 2022. Consequently, generally seller-friendly considera - tion mechanisms are likely here to stay. Locked-box mechanisms are used more frequently than comple - tion accounts (with the exception of certain industries, such as financial services) and while both earn-outs and escrows are rather rare, they have seen a revival which is expected to continue due to the diverging price expectations of sellers and buyers and overall economic uncertainty. The use of warranty and indem - nity insurance (sometimes stapled) with very limited residual liability of sellers is on the rise especially with financial sponsors, although still less prevalent than in other jurisdictions.
As a result of the overall seller-friendly environment, conditionality is usually kept to a minimum in Swiss (private) M&A transactions. Investment Control in Switzerland Following a debate that began in 2018, the Swiss Parliament has approved the adoption of the Swiss Investment Screening Act (ISA). This follows a global trend of investment control becoming a very relevant feature of cross-border M&A. The ISA establishes the requirement to seek approval when a foreign state-controlled investor assumes control through a takeover of a Swiss target under - taking that operates in a critical sector. Critical sector The main criteria for the application of the ISA will be operations in a critical sector. The ISA distinguishes in this respect between two categories of sectors that are deemed critical. The first category comprises the most sensitive sectors, in which target undertakings must reach, during the two business years prior to filing under the ISA, a threshold of 50 full-time employ - ees or a worldwide average annual turnover of at least CHF10 million. This category includes undertakings active in: • manufacturing goods or transferring intellectual property that are of critical importance for the oper - ational capability of the Swiss Armed Forces, other institutions responsible for governmental security, or space programmes, whose exports abroad are subject to authorisation under the War Material Act or the Goods Control Act; • operating or controlling the Swiss electric transmis - sion grids, large power plants or gas pipelines; • supplying more than 100,000 Swiss inhabitants with water; or • providing important security-relevant IT services for Swiss authorities. The second category is subject to a higher threshold of an average worldwide turnover (for banks: gross profit) of at least CHF100 million during the two busi - ness years prior to filing. This category includes: • hospitals;
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