SWITZERLAND Trends and Developments Contributed by: Roger Ammann, David Borer, Johannes A Bürgi and Lukas Wyss, Walder Wyss Ltd.
Acquisition Finance in Switzerland: an Overview The market for acquisition and leveraged finance transactions in Switzerland has seen constant growth in the past few years, supported by an increasing number of mid-size or large M&A transactions involving private equity investors mainly based in Switzerland and further Euro- pean countries such as the United Kingdom, Germany and France. Small and medium- sized acquisitions of Swiss targets are financed through the Swiss market and usually involve large Swiss banks such as UBS and Zurich Can- tonal Bank acting as arrangers in M&A financ- ing transactions or club deals. Smaller Cantonal banks often also participate in a syndicate. Larger acquisitions of Swiss targets are mostly arranged through London or New York and led by international players such as Citibank, HSBC, Barclays, Deutsche Bank or BNP Paribas as lead arrangers, and often also involve the issuance of bonds placed internationally with other financial institutions or high-yield investors. Overall, the Swiss financial market has been significantly less affected by inflation than other countries. In addition, due to significantly lower inflationary pressure in Switzerland in the recent past, the Swiss National Bank (SNB) has low- ered the key interest rate from its peak of 1.75% in 2024 in several steps to the current rate of 0.25%, with market participants opining that fur- ther interest rate cuts are possible. Despite some uncertainties with respect to glob- al developments, the market outlook is generally positive. Transaction structures Acquisition financing arrangements mostly con- sist of a combination of equity (such as share capital, capital contributions or quasi-equity in
the form of subordinated shareholder loans) and debt elements. How the debt part is struc- tured depends mostly on the required leverage for the transaction, and regularly consists of a senior debt structured as a term loan facility providing the means to pay the purchase price of the targeted entity combined with a revolv- ing credit facility to meet the target’s working capital needs. High leverage transactions are supplemented by mezzanine loans or high-yield bond instruments being part of second lien sen- ior debt or junior debt structures. To provide the borrowers with more flexibility regarding the size of the financing, incremental debt can be added to the debt structure, allow- ing the extension of the total commitments in the form of an incremental facility. Security and guarantees When granting security, on the one hand the point in time is relevant: certain securities can already be provided at closing, while others are only eligible as post-closing items. On the other hand, the company granting the security plays a role: the security can be provided by the acqui- sition vehicle as well as by the target (and their respective group companies). A standard security package in an acquisition financing consists of the following: • security over the shares of the acquisition vehicle and the target company; • security over claims and rights under the target share purchase agreement and related documents (such as due diligence reports); • pledges over bank accounts of the acquisi- tion vehicle and the target company; and • guarantees by material group companies.
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