Updated: Mar 26, 2020
February 2020 was unsurprisingly quieter in terms of M&A transactions in comparison to January. January generally finishes with an M&A high in terms of the number of transactions completed. This is due in large part to the fact that the holiday season has a tendency to push deals that were marked for the end of the calendar year, across into the new year thereby boosting January’s performance. Nevertheless, Switzerland saw a handful of important transactions among, outbound, inbound and domestic (Swiss to Swiss) deals.
Outbound - (Swiss buyer extending its international footprint)
The most recent transaction involved Swiss group Givaudan, one of the world’s largest manufacturers of flavours, fragrances and active cosmetic ingredients with a CHF 5.1 billion revenue potentially adding up to USD 250 million to its top line with the strategic acquisition of US flavour & fragrance specialty ingredients business Ungerer. Givaudan has locations in Europe, Africa and the Middle East, North America (Cincinnati, OH), Latin America and Asia Pacific. Whilst the State Secretariat for Economic Affairs (SECO) in its outlook for the Swiss economy heading into 2020 stated that “The export sectors, such as the metal and machinery industry, would suffer from sluggish international growth”, it also stated that in markets such as food and cosmetics “certain segments of Swiss industry, specifically chemicals and pharmaceuticals, are currently not very exposed to economic developments abroad”. The outlook for Givaudan proves the point and remains on a positive track and was emphasized in the annual statement from Tom Hallam, Chief Financial Officer at Givaudan in his comments on the Group’s acquisition strategy “Key to our strategy of value creation is a particular focus on areas where we can deliver winning solutions for our customers. In the last four years and fully aligned with our 2020 strategy, Givaudan has announced the acquisition of nine companies, each of which supports our strategic priorities of expanding our offer in Naturals, Active Beauty and Integrated Solutions.”
The company has made 17 acquisitions since 2007. This includes 7 in 2019 alone. The key drivers include; access to new regions of the world, increased market share, acceleration of future growth, developing proximity to key customers to be able to supply from a nearshore basis, and access to ongoing developments in organics. Today, the company caters to an increasing emphasis on more natural products that promote health and well-being by adapting its approach to expansion through acquisitions, strategic partnerships and key investments.
Inbound - (Foreign buyer securing its footprint in Switzerland)
Earlier in February, French Group CERTIFER a testing, inspection and certification body, acquired AEbt, headquartered in Nuremberg with offices in Olten, Switzerland (AEbt Schweiz GmbH), a Notified Body based in Graz, Austria. The acquisition has enabled CERTIFER to now provide an overall support as a DeBo/i-DeBo, NoBo, AsBo, ISA body in several countries including Switzerland. Linked to the rail industry these certifications refer to different aspects of safety and conformity. For example The AsBo (Assessment Body) assesses the risk management process of the applicant (manufacturer or operator), the NoBo (Notified Body) inspects the conformity of the vehicle or component with the requirements of the TSI on interoperability and the DeBo (Designated Body) investigates if the vehicle complies with the specific national rules (formally NNTR = Notified National Technical Rules).
Once, again geographic considerations and proximity to customers are shown to be the key drivers behind this inward acquisition of a multi-site group with its Swiss branch based in Olten. Building excellent and trusted relationships with key customers can take many years. A foreign acquirer has to consider whether it is more expedient and prudent to acquire a company that already has such relationships or whether to try to enter the market through establishing its own branch. The risks associated with trying to establish an own-branch, particularly for a foreign company entering a new country, are high and unfortunately the landscape is littered with the corpses of companies that have tried and failed to establish themselves organically in what is to the new market entrant a foreign country with particular nuances. It is far less risky to acquire an already long-established business, with developed sales channels, client loyalty, and high levels of repeat orders and with the ability to deliver that all important local touch.
Domestic (Swiss acquiring Swiss)
Earlier in February SafeSwiss® Secure Communication AG a world leader in VoIP and text Encryption based out of Lucerne, Switzerland, acquired Secure Swiss Data a multinational provider of end-to-end encrypted email. Acquisitions across the Cyber technology sector are increasing. By joining forces, the two entities are now able to provide consumers with greater confidence to use a fully encrypted suite of communication mediums in a single app, email, file storage, file sharing, phone calling and text messaging. This acquisition demonstrates the way in which two complementary businesses can create music together with each company adding different notes, in order that together, they can offer a wider array of products and services to their respective customer bases.
Buyers that offer complementary rather than competing products often have more to gain than when a competitor acquires another direct competitor. When a domestic competitor buys another domestic competitor its generally all about gaining market share, and other matters such as achieving certain economies of scale, for example, reducing duplicate staff across the two merged entities thereby improving the bottom line. Companies that come together on the basis of complementary products or services however, need each other primarily because they each have differing but complementary expertise, each has its own specific market knowledge and each can offer the high value opportunity of cross-selling their individual product or service lines to each other’s customer base. In essence, they can be more together than they can be apart. A clear recipe for success.
Each of these acquisitions, whether outward, inward or domestic, demonstrate why M&A shouldn’t be labelled Murders & Assassinations as proposed by one M&A academic I spoke to recently. M&A generally delivers growth to both the buyer and seller and should enhance the development of both the acquiring company and the selling company. In my experience as an M&A practitioner this is usually the case.
Simon Gregory - Contact me confidentially via Linkedin if you would like to discuss any matters pertaining to the sale of your company or to arrange a one-to-one meeting in Ouchy-Lausanne, Geneva, Bern, or Zurich..