By Aaron Kirchfeld, Manuel Baigorri, and Tara Lachapelle
Switzerland now has one more reason to join Europe’s acquisition binge in the U.S.
The unexpected rise in the franc is giving Swiss companies more acquisition firepower as they seek economic growth outside of Europe, according to bankers and academics. Drugmaker Novartis AG, crop-chemicals producer Syngenta AG and Nestle SA, the world’s biggest food company, are among those that could pursue U.S. targets that might range from General Mills Inc. to parts of Dow Chemical Co.
A surge in Switzerland-to-U.S. transactions would build on last year’s 270 percent increase in takeovers of American businesses by European buyers, in which Germany’s Merck KGaA, Bayer AG and ZF Friedrichshafen AG led the way.
“U.S. M&A files have picked up steam,” said Urs Raeber, head of investment banking in Switzerland for Deutsche Bank AG in Zurich. “U.S. companies have become much more attractive because of the uncertain growth outlook in Europe and the jump in the Swiss franc.”
The Swiss National Bank roiled markets worldwide on Jan. 15 with its surprise decision to abandon the franc’s cap against the euro, sending the currency up as much as 38 percent versus the dollar and 41 percent against the euro.
Switzerland’s 20 biggest companies on the Swiss Market Index have about $260 billion in cash or near-cash items, according to data compiled by Bloomberg.
“While I don’t think they would do a transaction just because of the strength of the currency, it definitely gives them another arrow in the quiver if a deal makes strategic and financial sense,” said Scott Rostan, chief executive officer of Training the Street, a New York-based firm that trains junior bankers and business school students.
European companies “are chasing growth and opportunity,” he said. “The U.S. is such a large consumer market that is doing much better.”
The U.S. economy expanded at its fastest pace in over a decade in the third quarter of 2014, reaching an annualized rate of 5 percent. Meanwhile, the European economy barely grew. And with the Greek election outcome raising the specter of more volatility on the continent, the U.S. looks increasingly like a haven.
It could mean that Nestle, the food industry’s most active acquirer, pulls the trigger on a long-speculated purchase of Minneapolis-based General Mills. A takeover of the $33 billion cereal giant would give Nestle more growing, health-conscious brands such as Annie’s, Fiber One and Nature Valley. And more than half of General Mills’ revenue is generated in the U.S.
Novartis, Switzerland’s most valuable company at 240 billion francs ($265 billion), probably won’t pursue larger “multibillion dollar” deals but isn’t completely out of the “M&A game,” Chief Executive Officer Joe Jimenez said this week. Drugmakers went on a record buying spree in 2014, and analysts say they expect it to continue this year.
Analysts also said last year that Basel, Switzerland-based Syngenta will probably look to other deal options after a merger with Monsanto Co. never came to fruition. The $30 billion crop-chemicals company could acquire Dow Chemical’s agricultural business or merge with DuPont Co. and then spin off the non-agricultural operations.
ABB Ltd., a $45 billion power-grid maker in Zurich, is often mentioned as a consolidator within industrials. One American target analysts have said it could be drawn to is Rockwell Automation Inc., which makes technology used in factories that produce everything from cars to packaged food. ABB is also considered a potential suitor for the Greenlee electrical-tools division of Providence, Rhode Island-based Textron Inc.
Swiss pumpmaker Sulzer AG needs a transformational takeover to help reverse years of declining revenue at the $3.5 billion company. U.S. candidates include Dril-Quip Inc. and Chart Industries Inc., valued at $2.9 billion and $856 million, respectively.
Givaudan SA, the Swiss maker of flavors and fragrances, said today it was actively working on potential small deals, and said U.S. consumer demand could pick up this year.
To be sure, currency changes don’t always impact a company’s decision on takeovers, and while the dollar has slumped against the franc this year, it has gained compared to 12 months ago. Roche Holding AG Chief Executive Officer Severin Schwan said this week that the franc’s strength will have “zero impact” on the Swiss drugmaker’s M&A strategy.
The Swiss central bank’s decision has had a mixed impact on Swiss targets. Local businesses have become more expensive as the currency appreciates, boosting the cost of local operations. Simultaneously, it sent Swiss stocks lower, making some companies cheaper. The benchmark SMI Index has declined almost 10 percent since Jan. 14.
Speculated to be a takeover candidate for the past couple of years, Actelion Ltd.’s valuation is now at a three-year low after its shares dropped 13 percent this year. The $13 billion pharmaceutical company generates almost half its revenue in the U.S. and about a third in Europe.
Still, as long as the franc’s relative value increases, the focus this year will probably be on Swiss companies buying U.S. companies — not the other way around.
“Swiss companies will find it cheaper to buy assets abroad,” said Jorg Rocholl, a professor of finance and president of the European School of Management and Technology, based in Berlin. “The business climate in countries such as the U.S. has picked up and Swiss companies will look at some of the promising opportunities there.”