Switzerland’s legal market faces similar reversals to the world at large: regulatory shifts, geopolitical flux and technological advancements are keeping partners on their toes. ‘The legal market is always developing in parallel to the general economic situation,’ comments Bär & Karrer’s Susanne Schreiber, who co-heads the firm’s tax team. In Q1 2023, Switzerland’s annual inflation rate rose to a high of 3.4% in February, 0.6% up on December 2022. In Q2, things started to look up with rates decreasing to 2.6% in April. Since then, rates have been on a steady decline, remaining at 1.7% for both September and October 2023.
Interest rates, too, have stabilised. Since July 2023, the Swiss National Bank has kept its policy rate at 1.8%, providing a sense of stability to the Swiss economy. Practice areas such as litigation and tax were extremely busy in 2023 while areas like M&A and capital markets saw a decrease in deal volume compared to previous years. Banking and finance and real estate and construction remained stable throughout the year.
The M&A market in Switzerland has experienced a noticeable shift, deviating from the robust trends in previous years. At the beginning of 2023, there was a discernible slowdown in M&A activity with deal volumes on a steep decline. Tino Gaberthüel from Lenz & Staehelin, who heads the corporate and M&A team and co-heads the capital markets team, highlights that: ‘The rate of transactions that do not get to a signing or don’t progress is above average, one reason being differing valuation expectations. Overall processes take a lot longer.’ Schreiber reports that the firm ‘saw a slowdown in certain M&A activities like private equity funds, which are less active both on the sell and the buy side’.
Despite the slow start to the year, Gaberthüel notes that ‘market activity has picked up significantly since Q2’. Still, he says that there has been a dearth of mega-deals: ‘The big-ticket deals are not yet on the map, meaning parties may assess potential opportunities, but they have not happened yet.’ For Patrik Peyer, managing partner of NKF, this increase in mid-market deals ‘underscores the resilience and adaptability of businesses in navigating the economic landscape’. Lawyers predict that mid-market deals will continue to dominate in 2024, and firms overall remain cautiously optimistic that they will have a busy year in corporate M&A.
There were some positive signs towards the end of the year. Gaberthüel highlights Partners Group’s acquisition of infrastructure-sector inspections provider ROSEN Group, with reported value as high as $4bn, as one transaction that stands out. The deal was announced in November and is expected to close in the first half of 2024, pending regulatory approval.
On 19 March 2023, the Swiss market experienced a seismic shift with the announcement that UBS was acquiring Credit Suisse for CHF3bn (€3.2bn) in an all-stock deal brokered by the Swiss government and FINMA. This unexpected development sent shockwaves through the financial sector, reshaping the Swiss banking landscape.
Law firms have also stood to benefit from the UBS acquisition of Credit Suisse. The complexity of this deal, as well as its implications, have required the involvement of various firms to keep up with the increasing demand for legal services generated. Firms involved included Walder Wyss acting as lead counsel to Credit Suisse and Bär & Karrer advising UBS, with Schreiber noting that the firm was ‘also selected to work on the integration, which keeps us busy’. Homburger also advised on various aspects of the deal. The potential employment law issues could present opportunities for law firms to provide counsel on workforce restructuring, layoffs, and related litigation.
While the transactional market is slower than in previous years, M&A-related litigation has experienced a discernible increase. ‘After Covid, there was a general dip in arbitration and litigation matters, as companies were being more cautious. This has picked up fully for quite some time now,’ says Caroline Clemetson, a partner in Schellenberg Wittmer’s banking and finance department in Geneva and Zürich and a member of the firm’s management committee. Now, activity in disputes ‘has picked up fully’. Gaberthüel explains this trend: ‘When valuations go down or there is uncertainty, there is willingness for potential disputes post closing.’
In other practice areas, commodities work has remained a focus for Geneva-based firms, despite a sanctions-induced slowdown in work for Russian clients. Advisory services have also seen increased activity, driven by ongoing developments in regulatory frameworks.
‘Even real estate survived,’ says Schreiber. ‘In neighbouring countries, they say real estate is dead. In Switzerland, there is still a lot of activity.’ Despite difficulties in real estate and construction across Europe, the Swiss market maintains transactional activity, albeit at a lower level than in previous years. Institutional investors shedding portfolios and challenges in meeting construction demands due to employment-related issues from the Covid pandemic contribute to this trend. Higher interest rates in Switzerland correlate with decreased real estate prices, creating a mismatch between seller and buyer expectations. However, many in the market expect the gulf in expectations to narrow, and forecasts suggest a resurgence in activity, with smaller but more frequent transactions.
In contrast, equity capital markets work is, in Gaberthüel’s words, ‘an area that’s been very quiet’. He mentions that ‘there haven’t been any IPOs this year in Switzerland’, reflecting a cautious approach from market participants. The subdued nature of capital markets has prompted legal professionals to adapt to a less bustling environment, emphasising the need for strategic diversification in response to the evolving dynamics of the financial market.
Flexible working is still a challenge facing all firms and balancing this with the correct culture is key for Swiss firms to attract and retain talent. Bär & Karrer has opened smaller offices in Basel and St Moritz, with the aim of, in Schreiber’s words, helping people ‘feel comfortable in the office and give them opportunities to develop in Switzerland’. Pestalozzi has also followed this approach and opened an office at the lake in Zürich.
The most notable development in this space occurred early in 2023, when Niederer Kraft Frey (NKF) opened a new office in Geneva consisting of 27 lawyers, which Schreiber highlights as ‘a very important move’. The office was the result of the firm’s ‘joining forces’ with Tavernier Tschanz and a team of lawyers from Python, and grants it access to the French-speaking market. ‘The reception from both existing and new clients has been encouraging,’ says Peyer. ‘The Geneva office is well-positioned for growth.’
As interest rates stabilise, many in the market see prospects for higher activity in 2024. The full impact of Credit Suisse’s collapse has yet to be fully felt, but few doubt that it will generate work across a range of sectors. Regulatory reform, too, poses both challenges and opportunities. Switzerland revised its corporate law in 2024, shifting to what Clemetson calls ‘a more modern way of doing corporate things such as dividends that can be done throughout the year’. The change will impact listed companies, notes Gaberthüel, as they ‘had to adapt their articles of incorporation and internal regulations’. Clemetson also points to new fund regulation the Limited Qualified Investor Fund (L-QIF), which ‘will probably come into force on 1 March, subject to the Federal Council deciding at the end of January’, and upcoming reform of the Financial Market Infrastructure Act, due ‘this year’. As businesses adapt to these evolving regulations, the legal sector is poised to play a pivotal role in guiding clients through the intricacies of the updated legal landscape.
‘Geopolitical tensions, notably exemplified by the Ukraine conflict, have injected an element of uncertainty,’ notes Peyer. ‘Legal professionals must remain vigilant about international developments that may impact their clients’ interests.’
‘The rate of transactions that do not get to a signing or don’t progress is above average, one reason being differing valuation expectations. Overall processes take a lot longer.’ Tino Gaberthüel, Lenz & Staehelin
Lawyers also point to technological changes as a key concern for 2024. ‘Cyber risk has become a persistent threat, necessitating legal practitioners to implement robust data protection measures and rapid response capabilities,’ comments Peyer. ‘As generative AI becomes more prevalent, there will be a need to assess its implications for the enforcement of privacy, securities, and antitrust laws.’ This will impact firms as well as clients: ‘Questions may arise about the reliability and accountability of AI-generated legal documents, and legal professionals may need to adapt to new challenges and opportunities presented by these technologies.’
Still, as the Swiss legal world gears up for 2024, practitioners look forward with anticipation, ready to navigate an environment shaped by regulatory shifts, geopolitical uncertainties, and technological change. In Peyer’s words: ‘As the Swiss legal market confronts these multifaceted challenges, the resilience and adaptability of legal practitioners become crucial in shaping a forward-looking legal landscape.’ LB