Entrepreneurship through Acquisition in Switzerland: Opportunities and Challenges

Switzerland, with its robust and diversified economy, faces a significant challenge: thousands of SMEs will require succession solutions in the coming years. Entrepreneurship through Acquisition (ETA) is establishing itself in this context as a promising approach that opens new perspectives for both entrepreneurs and sellers. This article highlights the particularities of ETA in the Swiss economic environment, outlines opportunities and challenges, and provides practical insights for interested parties.

Entrepreneurship through Acquisition in the Swiss Context

Switzerland, with its strong SME landscape, offers an ideal environment for Entrepreneurship through Acquisition. ETA refers to the targeted acquisition of an existing company by an entrepreneurially minded buyer who subsequently takes over operational management and further develops the business. Unlike conventional startups, the entrepreneur does not start from scratch but takes over a functioning business model with existing customers, employees, and cash flows.

The Swiss economic structure, with over 590,000 SMEs accounting for 99.8% of all companies and employing two-thirds of the workforce, offers enormous potential for this model. It is estimated that around 80,000 Swiss SMEs will require succession solutions within the next five years.

The Swiss ETA Market: Particularities and Structure

Switzerland differs from other ETA markets in several respects:

High Company Valuations: Swiss SMEs are often valued at higher multiples than comparable companies in neighboring countries, requiring larger initial investments.
Multilingual Environment: The four language regions often demand specific cultural and linguistic competencies but also offer opportunities for internationally oriented ETA entrepreneurs.
Stable Economic Environment: Switzerland’s political and economic stability provides favorable conditions for long-term investments.
International Orientation: Many Swiss SMEs operate internationally despite their size, presenting unique demands as well as growth opportunities.
Conservative Financing Culture: Swiss financial institutions traditionally take a more cautious approach to leveraged buyouts, necessitating alternative financing structures.

Typical ETA Models in Switzerland

Several ETA variants have become established in Switzerland:

Traditional Search Fund

Modeled after the American approach, "searchers" raise capital from investors to specifically search for an acquisition target. A distinctive feature in Switzerland is the often stronger involvement of local investors familiar with the regional economic environment.

Self-funded Search

Particularly common in Switzerland is the self-funded search, where the entrepreneur finances the search phase from personal funds and only involves external investors for the acquisition. This aligns with Swiss entrepreneurial traditions that emphasize independence and personal responsibility.

Family Office-supported ETA

A Swiss peculiarity is the increasing involvement of family offices in ETA projects. The many wealthy families in Switzerland seek alternative investment opportunities and support ETA entrepreneurs both financially and with their networks and expertise.

Industry-specific ETA Initiatives

Switzerland is seeing a growing number of industry-specific ETA initiatives, especially in sectors such as precision engineering, medical technology, and IT services, where specialized expertise is required.

The ETA Process in Switzerland

The ETA process in Switzerland largely follows international standards but has some particularities:

Preparation Phase: In addition to the usual positioning, this often includes building specific regional networks and, if necessary, acquiring additional language skills.
Search Phase: The search for suitable acquisition candidates in Switzerland frequently takes place through specialized M&A advisors, fiduciaries, and industry associations, as many companies are sold discreetly.
Due Diligence: Due to high company valuations, due diligence in Switzerland is particularly thorough and includes not only financial but also cultural aspects such as integration into regional economic structures.
Financing: Typical for Switzerland are more conservative financing structures with a higher equity ratio, often combined with seller loans and traditional bank financing.
Acquisition Phase: Swiss company sellers place special emphasis on a careful transition phase, which often lasts longer than in other markets and is accompanied by clearly structured handover protocols.

Legal and Tax Framework

The Swiss framework offers both advantages and challenges for ETA:

Advantages

Business-friendly Tax System: Moderate corporate taxation and favorable regulations for capital gains
Flexible Labor Market Regulation: Enables appropriate adjustments after acquisition
Efficient Administrative Processes: Faster regulatory approvals and lower bureaucratic hurdles
Legal Certainty: High reliability in contract drafting and enforcement

Challenges

Cantonal Differences: Varying tax and legal conditions depending on the canton
Strict Due Diligence Requirements: High duty of care in company acquisitions
Special Regulations in Certain Industries: Additional approvals in regulated sectors
Work Permits: Potential hurdles for foreign ETA entrepreneurs without Swiss or EU/EFTA citizenship

Financing ETA in Switzerland

ETA financing projects in Switzerland exhibit some particularities:

Equity

Swiss ETA transactions are typically financed with a higher equity share (often 30-50%) than in other markets. Sources include:

Private investors and business angels
Family offices
Specialized ETA investors and funds
Institutional investors with an SME focus

Debt

Relevant sources for debt financing include:

Cantonal and regional banks, which often provide special support to local SMEs
Seller loans, which play an important role in Switzerland
Alternative financing forms such as mezzanine capital
Guarantee cooperatives for smaller transactions

Swiss Particularities

Earnout Models: Frequent use of performance-based purchase price components
Phased Acquisitions: Gradual transfer of ownership over several years
Guarantees and Collateral: Higher requirements than in other markets

Advantages of ETA in Switzerland

For ETA Entrepreneurs

High-quality Acquisition Targets: Swiss SMEs often feature solid business models, innovation strength, and international orientation
Stable Economic Environment: Lower macroeconomic risks
Access to Talent: Highly qualified workforce and excellent education system
Innovation-friendly Ecosystem: Strong links to research institutions and universities
International Environment: Ideal basis for international expansion

For Company Sellers

Sustainable Succession Solution: Continuation of the company by committed entrepreneurs
Cultural Continuity: Preservation of corporate culture and values
Attractive Valuations: Often higher valuations than purely financial buyers
Flexible Handover Models: Possibility of phased transitions

For Investors

Access to Stable SME Investments: Participation in well-established companies with solid track records
Diversification: Complement to traditional asset classes
Above-average Returns: Historically attractive returns on ETA investments
Positive Economic and Social Impact: Contribution to solving the succession problem

Challenges and Success Factors

Key Challenges

High Entry Barriers: Significant capital requirements and specific qualification demands
Cultural Integration: Especially crucial in a multicultural country like Switzerland
Competition for Attractive Targets: Increasing rivalry from PE funds and strategic buyers
Regional Differences: Necessity to understand specific cantonal and regional particularities
Price Negotiation: Often divergent price expectations between sellers and buyers

Success Factors for ETA in Switzerland

Local Anchoring: Building strong regional networks and understanding local business culture
Industry Expertise: Focusing on sectors with personal experience or specific know-how
Financial Soundness: Conservative financing structures with sufficient reserves
Cultural Sensitivity: Respect for existing corporate culture and history
Long-term Perspective: Focus on sustainable development rather than short-term optimization

Swiss ETA Case Studies

Case Study 1: Precision Engineering in the Central Plateau

A former industrial manager took over a precision engineering company with 45 employees in the Swiss Central Plateau. Financing was secured through a combination of equity from local investors, a seller loan, and financing from the cantonal bank. The handover process was phased over 18 months, with the seller initially remaining on board as an advisor. Three years after acquisition, revenue increased by 35%, and internationalization was advanced through the opening of new markets in Asia.

Case Study 2: IT Service Provider in Western Switzerland

A group of two former consultants acquired an IT service provider focused on banks and insurance companies in Western Switzerland. The transaction was initiated through a self-funded search and financed with support from a family office and a group of business angels. Particular challenges included integrating different corporate cultures and introducing new service areas. After acquisition, the business model was successfully expanded to include cloud services, and the workforce grew from 25 to 40 employees.

Case Study 3: Tourism Company in Graubünden

An international entrepreneur with experience in the tourism sector took over a traditional tourism company in Graubünden. The peculiarity lay in the complex stakeholder structure involving the municipality and local business associations. The acquisition was realized through an innovative financing model with community participation. The new owner introduced a digital booking system and developed new year-round offerings, reducing seasonality and increasing revenue by 40% within four years.

ETA Ecosystem in Switzerland

In recent years, a growing ecosystem around ETA has developed in Switzerland:

Educational Institutions

Specialized programs at business schools such as IMD, University of St. Gallen (HSG), and HEC Lausanne
Executive education offerings focused on company acquisition and succession
Workshops and seminars by business associations

Consulting Providers

Specialized M&A advisors focusing on SME transactions
Fiduciaries and auditors with due diligence expertise
Lawyers specializing in corporate transactions

Networks and Communities

ETA platforms such as the Swiss Search Fund Association
Alumni networks of business schools
Regional entrepreneur networks and associations
Specialized investment communities and angel investor groups

Government Support

Information and advisory services from cantonal economic development agencies
Programs promoting business succession by cantonal authorities
Guarantee cooperatives facilitating financing

Future Perspectives for ETA in Switzerland

The following trends are emerging for the future of ETA in Switzerland:

Growing Professionalization: Emergence of specialized service providers and standardized processes
Sector-specific Specialization: Increasing focus of ETA entrepreneurs on specific industries and niches
Internationalization: Growing interest of international ETA entrepreneurs in the Swiss market alongside expansion of Swiss ETA companies abroad
Alternative Financing Models: Development of innovative financing structures such as ETA-specific funds and hybrid capital forms
Digitalization Focus: Increased emphasis on digital transformation of acquired companies as a value-enhancement strategy
ESG Integration: Growing consideration of sustainability aspects in acquisition and management

Practical Tips for ETA in Switzerland

Entrepreneurs pursuing the ETA path in Switzerland should particularly consider the following:

Build Regional Networks: Establish contacts early with local business associations, fiduciaries, and banks
Leverage Multilingualism: Develop language skills in German, French, or Italian depending on the target region
Conservative Financial Planning: Plan sufficient capital reserves for unforeseen developments
Cultural Due Diligence: Consider cultural aspects alongside financial ones in company analysis
Build Long-term Relationships with Sellers: Trustful relationships are especially important in Switzerland for successful transactions
Consider Regional Particularities: Take into account cantonal differences in taxes, incentives, and business culture
Incorporate Succession Planning Early: Develop structures for your own succession or potential exit at an early stage

Conclusion

Entrepreneurship through Acquisition is becoming an increasingly important alternative in Switzerland for both entrepreneurially minded individuals and company sellers. The Swiss economic environment, with its strong SME landscape, high level of innovation, and international orientation, offers ideal conditions for successful acquisitions.

The particularities of the Swiss market require specific approaches but also offer unique opportunities. With proper preparation, a strong local network, and a long-term, sustainable approach, ETA in Switzerland can deliver above-average results for entrepreneurs and investors alike while making a significant contribution to solving the succession challenge in the Swiss SME sector.

For aspiring ETA entrepreneurs, Switzerland offers not only an attractive market with high-quality acquisition targets but also an increasingly mature ecosystem of support services. The coming years will show how this promising approach will further establish and develop within the Swiss business landscape.

Would you like to learn more about business acquisitions in Switzerland? Also explore legal particularities or financing options for your project.

Entrepreneurship through Acquisition in Switzerland