After delivering his keynote address at this year’s World Economic Forum in Davos, President Trump immediately left to catch the plane home. En route to Air Force One, every bridge crossing the highway on which his limousine passed was closed, doing everything to sweep aside potential delays to his exit. Yet despite being the world’s most expensive country to live, few locals ever choose to emigrate from Switzerland – except perhaps to retire in warmer climates.
And why would they? Swiss citizens enjoy a high living standard, low levels of inflation, unemployment and crime and enviable economic and political stability. ‘Even if the cost of living is high, the high salaries, the high quality of life, the beautiful landscape, security – all of that creates an attractive package,’ says Daniel Hochstrasser, managing partner of Bär & Karrer.
According to the latest OECD forecast, Swiss economic growth is projected to increase in 2020-21, private consumption will remain resilient and the current account surplus will continue to be substantial thanks to a robust export-led economy. As a reflection of its status, Switzerland has been invited to participate for the first time in the next G20 summit, which is being held in Riyadh in November. ‘Switzerland tries to have a seat at the table – that is not always easy,’ notes Philippe Weber, managing partner at Niederer Kraft Frey (NKF). ‘Although if you look at the size of the economy it would be justified when you see who else is in the G20.’
Swiss M&A activity fell last year compared to the record-breaking figure in 2018. KPMG data shows that the volume of transactions with Swiss involvement dropped from 493 to 402, although the aggregate value remained at a comparable level: down only from $133bn to $127bn. After a weak first half and a notably subdued first quarter, deal activity picked up strongly over the rest of the year.
‘We still defy gravity – the Swiss economy and the Swiss Bar. The conditions for foreign trade have never been as good as right now.’
Daniel Daeniker, Homburger
Benedict Christ, co-head of corporate and M&A at VISCHER, comments: ‘There was some doubt as to how things would progress: German car manufacturers had a slump so that affected Swiss suppliers and transport volumes came down. Ultimately, M&A activity tracks the economic cycle. In Switzerland, up to the year end, we were very busy.’ Looking ahead, Timo Knak, head of M&A at KPMG, says: ‘Swiss companies are well poised to engage in M&A; they have high liquidity, robust balance sheets and a favourable financing environment.’
Nevertheless, even a strong economy has challenges. Despite prolonged negative interest rates of -0.75%, which The Swiss National Bank first put in place five years ago, the Swiss franc’s strength against the US dollar and the euro continues. The stated intention is for no change to rates, but analysts suggest that they could turn even more negative as a means of boosting the economy by encouraging spending over saving.
This creates problems for some. ‘The Swiss economy is in good shape,’ says Urs Kloeti, managing partner of Pestalozzi. ‘For our foreign clients, Switzerland is attractive and it’s generating plenty of work for lawyers. However, we feel the pressure of a very strong Swiss franc. The exchange rate is hitting our exporters. Lawyers are also an export industry although we are getting used to the challenge. For us it has been a very solid year.’
Sugar-coated pills
Against a favourable background, Swiss lawyers are feeling pretty fortunate. ‘We are very lucky,’ says Guy Vermeil, managing partner of Lenz & Staehelin. His opposite number at Homburger, Daniel Daeniker, concurs: ‘We still defy gravity – both the Swiss economy and the Swiss Bar. The conditions for foreign trade have never been as good as they are right now.’
He does, however, qualify his hyperbole by putting things in a global context. ‘I’ve been waiting for a downturn worldwide for the last few years, which hasn’t happened,’ says Daeniker. ‘We are now in year 13 of an M&A cycle that normally runs for seven to eight years. Meanwhile, our multinationals are thriving. Last year, Nestlé became the largest company in Europe, with a market cap of $300bn and that has been growing since. It’s scarily positive on every front.’ Among Homburger’s client list are Swiss household names such as Kraft Foods, Nestlé, Novartis and Roche.
In one of the biggest deals last year, Nestlé sold its skincare business for $10.2bn to a consortium led by Swedish private equity firm EQT and the Abu Dhabi Investment Authority. Latham & Watkins and Kirkland & Ellis advised EQT. But Nestlé turned to Walder Wyss, rather than Homburger, to work alongside Linklaters on the deal, which involved the largest leveraged buyout in the European market last year and the second largest since the financial crisis.
Notably, the ten largest Swiss M&A transactions in 2019 were driven primarily by the activities of two pharma groups: Novartis and Roche. Walder Wyss partner Hans Rudolf Trüeb outlines how the Swiss economy has evolved since the banking crisis. ‘We have had a structural shift over the last decade from financial services to pharma and biotech – a very clear shift,’ he says. ‘Without the likes of Novartis, Roche and Nestlé, the Swiss economy wouldn’t be on the international map any more, at least not for our two large banks.’
Beyond the relative international decline of the big duo, UBS and Credit Suisse, the dramatic decline of Swiss private banking in recent years is much documented in an age when the international community is less tolerant of bank secrecy and the kind of tactics tailor-made for hiding wealth. ‘Small banks continue to struggle with costs which are higher in terms of compliance, and in 2020, we believe there will be more consolidations and acquisitions of small and medium banks by larger institutions,’ says Vermeil. By contrast, he adds: ‘Pharma remains one of the top industries in Switzerland, bringing a lot of business to law firms and employing many people.’
‘We anticipate the new legislation on financial services will lead to an immediate increase in regulatory work.’
Domitille Baizeau, LALIVE
Across the board
For Swiss firms overall, there was a substantial volume of instructions last year alongside plenty of deals to advise on. The managing partner of Schellenberg Wittmer, Philippe Bärtsch, says: ‘It was a very successful year: activity was strong in all practice areas.’ He points to ‘extraordinary growth’ in the firm’s ICT practice. ‘We have seen many engagements in cyber security matters.’
‘2019 was a very good year across the board,’ says Hochstrasser. ‘In all major areas we were busy and there were no weak spots.’ As evidence, he points to Bär & Karrer advising Novartis on the spin-off of its Alcon eye care devices business (the largest Swiss deal last year, valued at $31bn, and the largest spin-off and listing on the SIX Swiss Exchange for more than a decade). Other work included advising UBS on the transfer of its asset management business, and Cellnex on its acquisition of communication sites from Salt.
Life sciences is a key growth sector, notes Hochstrasser. ‘From small start-ups to bigger companies, it is an area on which we put a special focus as it continues to grow,’ he says. ‘We make an effort to make our name known in those circles.’
A similar picture emerges at NKF. ‘We had an excellent year,’ says Weber. ‘This included some very significant M&A transactions, while in capital markets we had an exceptionally strong year.’ Last year, NKF acted on each of the three largest IPOs on the Zürich-based SIX Swiss Exchange: Stadler Rail, the Medacta Group and SoftwareONE. Of the $24bn raised in European IPOs in 2019, this trio were among the largest: the Stadler IPO raised $1.4bn, while on debut, Medacta was valued at $1.9bn and SoftwareONE at $2.8bn.
Among a cluster of M&A deals, NKF has also advised Global Blue on its $2.6bn merger with Far Point Acquisition and PolyOne on its $1.45bn purchase of a masterbatch business from Clariant Chemicals India. ‘We ended last year and started this year pretty well with two deals above the billion-dollar mark, and we have a few more in the pipeline,’ says Weber. ‘We also closed a nice, although small deal, where we acted for the first time for Vivendi: they made an acquisition in Switzerland for a ticketing business.’
Homburger had ‘an excellent year for any kind of M&A transaction,’ says Daeniker. ‘Elsewhere, it was a so-so year for equity capital markets, OK in debt capital markets, and white collar and investigations continue to thrive.’ Homburger advised Clariant on the PolyOne deal, as Daeniker points to the $4.7bn merger between Danish logistics firm DSV and Swiss supply chain company Panalpina Welttransport, as another highlight. Homburger advised the major shareholder Panalpina, alongside Schellenberg Wittmer, which advised the board of directors. On the other side, Bär & Karrer advised DSV, together with Skadden, Arps, Slate, Meagher & Flom.
Vermeil uses more cautious language than some of his counterparts: ‘Last year was very much like 2018, so a good year without being fantastic.’ By contrast, the tone used to describe VISCHER’s performance is notably upbeat. ‘In M&A and private equity, we were very busy,’ says Christ. ‘We have a diverse industry base in Switzerland, so it was across sectors. Life sciences have been very strong for us and in litigation, there have been lots of hospital regulatory disputes we have been working on.’
Disputes aplenty
Several firms point to a steady stream of investigations and an increase in disputes work – much of it US-originated. As a result, international firms, such as Quinn Emanuel Urquhart & Sullivan, Cravath, Swaine & Moore and Freshfields Bruckhaus Deringer have been forging closer links with Swiss firms.
‘Brexit made the headlines, but in terms of real impact it’s very difficult to assess. However, it has delayed negotiations and put Switzerland in the back yard.’
Guy Vermeil, Lenz & Staehelin
Hochstrasser points to major current investigations in which Bär & Karrer has been involved, most notably in banking and insurance. ‘All of them are cross-border,’ he says. ‘There are three groups: those emanating from the US or from one of the major European countries, and then there are special cases, such as our client in one country that became the centre of attention by the authorities, which triggered a substantial investigation.’
As elsewhere, the knock-on effect of investigations and still-increasing regulation has fuelled a dramatic growth in compliance. ‘The compliance department in any particular multinational company has increased dramatically,’ says Hochstrasser. ‘If ten years ago you had asked me: “Will Bär & Karrer have a compliance officer?” I would have said: “Why should we? All our partners monitor our compliance with the laws, so we don’t need a compliance officer.” Nowadays, we have one.’
Across a spectrum of commercial and international disputes, specialist firm LALIVE is a strong player. In addition to opening a London branch in 2018, the firm recently hired Thomas Brown, previously managing partner of Allen & Overy Asia-Pacific. ‘We are thrilled that he is now able to deploy his leadership and management skills with us,’ says partner Domitille Baizeau.
LALIVE continues to see an increase in sports arbitration before the Court of Arbitration for Sport (CAS) in Lausanne and related proceedings before the Swiss Federal Supreme Court, including cases involving the Russian Federation and Russian athletes.
In LALIVE’s litigation practice, white-collar-crime-related proceedings and investigations continue to be prominent, according to Baizeau. ‘We have also seen an increase in the number of disputes in private wealth. These cover a broad spectrum, including banking litigation, trust litigation and family disputes. We anticipate the new legislation on financial institutions and financial services, which also applies to foreign entities operating in Switzerland, will lead to an immediate increase in regulatory work for firms and to an increase in mis-selling and negligence litigation.’
Many of the large Swiss firms also have an active disputes practice. But here, Daeniker hits a more downbeat note, arguing that ‘Switzerland has lost ground in international arbitration, whereas the Singaporeans have been unbelievably successful. They are extremely good at selling their own country. But we are doers rather than sellers, so we’ve lost out. Our litigation and arbitration practice is still growing, but the growth would be bigger if we didn’t have the competition from Singaporeans, who are brilliant self-marketers.’
Hochstrasser disagrees: ‘Singapore is a very active arbitration venue and is now considered the number one arbitration venue in Asia and for regional business. It is competition for everybody. Switzerland certainly has to fight to keep its place in the arbitration world, and we do so with moderate success. But the perception that this is directly at the cost of Switzerland is incorrect.’
Baizeau identifies more players in the field including global firms opening offices in Switzerland to focus on international arbitration, the latest being King & Spalding. ‘This is strong evidence of Switzerland’s enduring success as an international arbitration hub,’ she says. ‘Brexit and the uncertainties that came with it may have also played a role here.’
The young kids
One phenomenon in the Swiss legal market is beyond dispute: the continued rise of Walder Wyss. While most Swiss firms have experienced only modest expansion in lawyer headcount over recent years, Walder Wyss has continuously increased its revenue and fee-earners by double-digit percentages.
Last year was no exception, even if fee-earner growth was more modest than before. ‘We had a great year: 2019 was a record in revenues and profit,’ says corporate partner Trüeb. ‘We were very happy. We added more lawyers – it goes hand-in-hand – roughly 20 fee-earners. In total, we have about 60 partners and 240 fee-earners – we are now the largest firm in Switzerland. We are the young kids on the block: a bit more direct and aggressive somehow – we cannot convert into a more conservative manner, we are as we are. Numerically, and in brain power, we are at the top.’
Following its latest hiring round last year, Walder Wyss pulled ahead of Lenz & Staehelin in second place creating a gap in size between them. ‘Walder Wyss has had a strategy of active growth for many years, clearly signalling in the market that it is open for people who would like to move and join them,’ says Christ. ‘That is untypical. In the top echelon, it’s pretty stable: firms stay, people stay. Most are traditionally of the view that we raise our own partners and you can’t just come in.’
New partner appointees at Walder Wyss include more women – a problem for many Swiss firms where gender diversity has been largely ignored. Among them are employment partner, Irène Suter-Sieber, who recently joined from Homburger, and transactional partner, Ramona Wyss.
Citing the broad economic shift towards pharma, biotech and life sciences and a practice move towards more compliance and investigation work, Trüeb says: ‘These two shifts shaped our year: we built up an investigations team, where we’ve been active while we are very active in life sciences and pharma, licensing and patenting, and joint venture work for pharmaceutical companies.’
Advising Nestlé on its $10.2bn subsidiary sale to EQT was the biggest-ever deal on which Walder Wyss has acted. ‘Size is important, because it brings you headlines. If gravity works in physics, then it works in the law business as well,’ says Trüeb. ‘You need to have a certain mass to attract larger clients and also to be visible to foreign clients.’
There has been some notable growth elsewhere. BianchiSchwald, formed in 2017 by the merger of BCCC and Staiger Schwald, increased its partner headcount from 13 to 17 last year. Among the firm’s most prominent practice areas, managing partner Thomas Goossens highlights labour and employment law. ‘It has become a very successful practice group in terms of turnover.’
Many people used to consider labour law as ancillary to other work, he notes. ‘The last few years have shown that it’s not only a supporting practice but a leading practice with all the big corporates that we have in Switzerland. In Geneva, our clients include banks, insurance companies and asset managers, as well as hospitals, clinics and biotech companies.’ One key relationship for BianchiSchwald is Stadler Rail, which had its IPO last year.
2020 vision
In looking ahead, Swiss lawyers have few domestic concerns, although Brexit continues to cast a shadow over Switzerland’s future relationship with the EU while the coronavirus is gripping Europe as Legal Business goes to press. ‘Brexit made the headlines, but in terms of real impact it’s very difficult to assess,’ says Vermeil. ‘However, it has delayed negotiations and put Switzerland in the back yard.’
‘We are the young kids on the block: more direct and aggressive. We cannot convert into a more conservative manner – we are as we are. Numerically, and in brain power, we are at the top.’
Hans Rudolf Trüeb, Walder Wyss
Weber develops the point: ‘Brexit has held things up terribly. Because the EU did not want to set any negative precedents for their negotiations with the UK and so would not make any concessions to Switzerland – that has not been positive. Frankly, if the UK manages to sort out its relationship with the EU this year, I do not expect things will change materially for the better as regards Switzerland. It is a bad thing for us.’
A free trade agreement with the US remains another domestic priority. ‘Switzerland has engrained in its DNA a very free trade, low regulatory environment,’ says Daeniker. ‘It’s still pretty open on whether the free trade agreement will take off,’ adds Christ. ‘In terms of work, the more commerce there is between countries, that certainly helps our business.’
Overall, levels of optimism about the volume and value of future legal work are high. ‘M&A, unless something severe happens in the global economy, I don’t see any reason why it should not continue as it did last year,’ says Vermeil. Concerns over fee rates are not particularly vocal while the absence of international competition in the domestic legal market, save in niche areas, means there is less competitive pressure than in many European countries.
It is the kind of outlook that managing partners in many other European markets would love to have. ‘We are just hoping that things will continue the way they always have done,’ says Hochstrasser. ‘And that there will not be any developments in the economy that will lead to a recession. Obviously, that is always something that everybody looks out for, not just in Switzerland.’ Trüeb is uncompromising: ‘If you stop growing, you are dead. Never. We will continue to grow – organically and internally, but also by adding new teams, especially in Geneva.’
Given such prospects and the increasing potential of the Swiss legal market, there is no reason to expect an army of Swiss lawyers to be emigrating any time soon. LB
Taxing times – Controversy and reform on the agenda
‘Large multinationals watch their tax situation continuously: anything that could jeopardise their setting is carefully monitored.’
Daniel Hochstrasser, Bar & Karrer
Last May, after protracted efforts to reform the Swiss tax system, voters finally accepted the government’s proposed changes in a referendum. One consequence is that Swiss cantons can no longer lower multinationals’ corporate tax rates; instead, all companies are subject to the same rate. ‘Tax reform has been implemented and it’s going rather well, our tax people are very busy,’ says Guy Vermeil, managing partner of Lenz & Staehelin.
A key objective of the reforms is to keep Switzerland attractive as a business location. But the same may not turn out to be true of the OECD’s more radical proposal: a global minimum corporate tax rate that would affect technology giants and other large multinationals, even if they have legally shielded their profits in low-tax centres. Its primary objective would be to eliminate the huge advantages that they derive from sheltering profits to minimise corporate tax bills.
‘There is a justified purpose behind the OECD proposal: to avoid forum shopping with outrageously low tax rates,’ says Urs Kloeti, managing partner of Pestalozzi.
It is partly because of low corporate tax rates that multinationals favour a Swiss tax base, although Daniel Hochstrasser, managing partner of Bär & Karrer, points out that ‘taxes per se – 2% or 3% more, or 2% or 3% less – are not the only deciding factor. The Googles of this world carefully consider where they want to be, and there are other factors. Large multinationals watch their tax situation continuously: anything that could jeopardise their present setting is carefully monitored.’
Despite being only at the consultation stage, lawyers view the likelihood of a global minimum corporate tax rate being implemented over time as significant. ‘That is the direction of travel on tax rates,’ says Kloeti. Big law firm clients share the same view. ‘The clients who are wondering when this will enter into force are mostly multinationals,’ says Thomas Goossens, managing partner at BianchiSchwald. ‘They are certainly anticipating these changes and have them carefully in their sights to anticipate future decisions.’
At Niederer Kraft Frey (NKF), managing partner Philippe Weber adds: ‘Like Ireland and the Netherlands, Switzerland is the headquarters of many international companies, so if the rules of the game were to change such that you were to be taxed more according to where you make your sales, that could have an impact.’
Benedict Christ, co-head of corporate and M&A at VISCHER, goes much further: ‘It’s years away from perhaps finding a solution on how they want to approach this, so it’s still pretty open. Having said that, when you look at how it will affect Switzerland, it can only be bad. To try and keep this proposal as reasonable as possible and limit it to the furthest extent possible – that’s clearly the Swiss view.’
In conclusion, Homburger’s managing partner Daniel Daeniker says: ‘Yes, it is going to happen. The consequences for Switzerland are interesting. There is a bit of an industry here that does IP development, invoicing and royalty collection, things like that, which we call principal companies. Mostly, they are European headquarters of American multinationals, sometimes even worldwide headquarters based here – this is the kind of company that would be most affected by the new OECD proposal. The average manufacturing company with a holding location in Switzerland and branches, factories and outlets around the world, is not going to be affected because they already have a pretty heavy tax burden locally.’
Blockchain Swiss-style – after the hype
‘Blockchain has been suggested as a solution to fix problems from global warming to money laundering. It won’t live up to this promise.’
Hans Rudolf Trüeb, Walder Wyss
Blockchain and distributed ledger technology (DLT) have been subject to much hype, primarily because of cryptocurrencies, and in particular, Bitcoin. For a while, initial coin offerings (ICOs) to raise capital for blockchain companies were all the rage in Zug. But two years ago, the bubble burst. Nonetheless, the market has since stabilised and for some, blockchain has a bright future.
Switzerland is among the nations positioning itself as a hub for Blockchain: legislation, now at the draft bill stage, accommodates blockchain and DLT, aiming to regulate crypto-based assets. ‘Switzerland is certainly at the forefront of the crypto world and the crypto economy,’ says BianchiSchwald’s managing partner, Thomas Goossens. ‘There might be fewer projects and less news about it, but the stuff that is being done has become more serious and more promising than what occurred in the first hype where we had a lot of nonsense,’ says VISCHER partner, Benedict Christ.
‘The heyday of ICOs is over, or at least temporarily over,’ says Urs Kloeti, managing partner of Pestalozzi. ‘There are now serious players and serious clients that want to get regulation, which keeps our group in that sector reasonably busy. There is interest from clients all over the world to become active in Switzerland.’
After Facebook announced plans last June to launch Libra, a cryptocurrency, it established the Libra Association in Geneva and sought Swiss regulatory consent. But in December, Ueli Maurer, Switzerland’s finance minister, concluded: ‘I don’t think Libra has a chance in its current form, because central banks will not accept the basket of currencies (US$ – 50%; € – 18%; Japanese Yen – 14%; £ – 11%; Singapore $ – 7%) underpinning it.’
Daniel Hochstrasser, managing partner of Bär & Karrer, which advises Libra, says: ‘It remains to be seen whether it’s going to fly, and where it goes: that depends on several factors. It’s interesting that this is happening in Switzerland and there’s still considerable optimism that it will happen and be a success.’
Beyond Libra, blockchain is keeping many lawyers busy. ‘We are very active in this area,’ says Philippe Weber, managing partner at Niederer Kraft Frey (NKF). ‘We are members of the Swiss Capital Markets and Technology Association, which is focusing on possibly tokenising assets using DLT. Most entities are still start-ups or smaller entities, so fee volume is small, but growing.’
Guy Vermeil, managing partner of Lenz & Staehelin, says that in terms of business: ‘We can’t say it has had a material impact on the firm, but we try to be at the cutting edge of legal matters in that field. Switzerland is certainly at the cutting edge and hopefully we will remain so with many companies establishing in Zug, trying to develop that type of business.’
According to Daniel Daeniker, managing partner at Homburger: ‘Facebook probably just overplayed its hand. The rest of the market is still thriving and an experimental lab for anything that could come in terms of alternative payment methods and alternative currencies. Where we come in is the institutional angle: Credit Suisse or UBS pitching for something and we help them structure the deal, or the Swiss Exchange, where we helped them work on the platform.’
But not everyone is convinced. Walder Wyss partner Hans Rudolf Trüeb says: ‘We’ve tried to stay away from ICOs, we don’t want to be part of that, there have been too many issues. We want to see whether crypto banks and crypto-traded funds come into existence. After the irrational exuberance, it’s bottomed out, and it’s time to see whether there are sustainable business applications with blockchain. It’s a useful technology but it’s been suggested as a solution to fix problems from global warming to money laundering. I don’t think it will live up to this promise.’