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Brightbridge Wealth Management Headlines: Franc expected to boost Swiss M&A in second half

By Brightbridge Wealth Subscribe to RSS | February 22nd 2012 | Views:

By John Revill

ZURICH (MarketWatch) — The Swiss mergers and acquisitions market is expected to continue its resurgence in the second half of 2011 after the second quarter saw deal volumes go up threefold, according to consultancy Ernst & Young.

The continued economic upturn together with the surging value of the Swiss franc is expected to drive an increase in acquisitions past 2010 levels.

In the second quarter of the year, deal volume rose to 38.2 billion Swiss francs ($47.5 billion) up from CHF12.5 billion in the first quarter and significantly higher than the CHF4.6 billion achieved in the second quarter of 2010.

The total number of deals remained relatively unchanged during the period at about 225.

“Last year the total volume was $52 billion with around 460 deals. For this year, total deal volume might be able to increase to $100 billion,” said Marc Reinhardt, senior manager for mergers and acquisitions at Ernst & Young in Zurich.

The Swiss franc has risen 6.8% against the euro and 9.3% against the dollar during the second quarter of 2011, making it cheaper for Swiss companies to buy foreign companies.

“We know there are a lot of deals being helped by the Swiss franc. Companies are buying firms in the euro area and in emerging markets, and the strength of the franc is making it easier for them in some cases,” said Reinhardt.

Many companies have sufficient funds available for acquisitions, he added.

Companies are looking to have more of their costs outside the franc area, which would help reduce the impact of the currency eating into their margins.

“They want to encase their natural hedge,” said Reinhardt, who added revenue growth was the other main motivation for companies.

But the number of deals coming in might drop if the Swiss franc continues appreciating at its current pace, the consultancy said.

Areas such as high tech, IT telecommunications, financial services and energy are expected to be among the most active for M&A activity during the remainder of 2011, E&Y said.

The largest transaction announced in the second quarter was the $13.7 billion deal by Japan’s Takeda Pharmaceutical Company (4502.TO) to buy Swiss pharma company Nycomed SICA S.C.A.

The $21 billion acquisition of Synthes Inc. (SYST.VX) by Johnson & Johnson JNJ -0.45%was actually the largest in the period, but wasn’t included in the Swiss M&A statistics because Synthes is headquartered in the U.S.

The media, technology and telecommunications sector was the most active industry in terms of the number of M&A transactions during the second quarter, accounting for slightly more than 20% of the deals, E&Y said.

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