Chinese M&A activity in Switzerland has increased after the financial crisis in 2008. Therefore, despite the fall due to COVID-19, activity is expected to recoup in the coming years.
Companies like Syngenta, SIGG, Swissport, Gategroup, and Bally have been targets of large Chinese Corporations. Former has attracted huge media attention, given the fact that it was the largest outbound M&A deal by a Chinese company to date. This blog tries to summarize the findings of an in-depth analysis for the years 2001 to 2018.
What attracts Chinese companies
Chinese corporations have enjoyed significant ownership advantages for outbound acquisitions. Their home-market access, the largest and still growing consumer market, and a bubbling middle class opened the doors to raise capital to finance expensive targets. The main motivations for acquiring Swiss companies have unsurprisingly been offering high-quality consumer and business equipment and machinery to the Chinese market. Since 2018, 9 companies in the watches industry have been taken over by Chinese companies. The "Swiss" brand enjoys a high reputation among Chinese middle- and upper-class consumers.
High-tech companies and R&D-intensive niches are also attractive targets. The innovative Swiss mentality and business acumen are positively received. Other mention-worthy targets are active in the materials and chemicals industry. The former were acquired with the intention to create global strategic advantages and secure access to resources. At the same time, the latter have been targeted for their importance for the government-initiated Five-Year plans.
Switzerland has innovative industry clusters in pharma, chemicals, materials, and specialized machinery.
Last but not least, Switzerland-Chinese bilateral relations have a long history, which is increasingly intensifying. So it comes as no surprise that one of the first international companies to settle in China was Schindler.
Most targets were upstream focused and B2B oriented. Hence seeking access to the European or Swiss market, in particular, has not been prevalent motivation.
What drives Chinese M&A in Switzerland
China was able to keep the exchange rate low and offer state-led access for outbound acquisitions. The government has since tried to steer these investments to more national relevant goals of innovation and productivity increase and restricted such in real estate and sports clubs.
Firms in China, similar to other large corporations from emerging countries, pay out less to shareholders and have higher reinvestment rates. This is expected to prolong for as long as growth in these countries continues to sustain.
What lies ahead
Chinese inbound and more pronounced outbound M&A activities have decreased during the COVID-19 crisis. Current figures, however, show a recovery of inbound activity. We believe that Swiss companies, particularly specialized family firms, will be attractive targets again, with significant collaboration opportunities and access to resources from diversified global players. The challenge: get the integration and collaboration right. Cultural, institutional and working differences can be barriers.
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