Many large corporations have huge stacks of cash

For Alexander Grünwald, from Houlihan Lokey, going public is not the only option for companies that want to grow or raise capital.

Will the slowdown in the global economy slow down mergers and acquisitions – or, on the contrary, will it help to speed up mergers between companies seeking greater efficiency? The dot with Alexander Grünwald, managing director of Houlihan Lokey, an investment bank specializing in mergers and acquisitions.

What are Houlihan Lokey’s main activities in Switzerland and in which branches are you most present?

We work mainly in mergers and acquisitions advisory (M&A Advisory), whether for private equity funds or for the companies themselves. We essentially advise companies so that they can sell their company or their platform under the best conditions. The companies we support come from different industries including technology, e-commerce, consumer products or healthcare. Then, Houlihan Lokey also advises companies in the capital markets area. We help them raise debt or stock so they can make an acquisition, for example. We work here on behalf of companies and private equity firms.

“The window for IPOs is effectively completely closed, as is also the case for SPACs.”

Do you have specific areas of expertise?

In Switzerland, we have supported many transactions related to technology or e-commerce in recent years – and this in very different areas. We can mention the Basel company Medgate, which was bought by the German company Otto Group. Insurers have also taken on several start-ups in recent years. This is the case with Bexio, which was acquired by La Mobilière, Movu by Bâloise and Moneypark, which was acquired by Helvetia. Media groups have also been very active in terms of mergers and acquisitions, such as Scout24, which was acquired by Ringier Digital, or, which is owned by Ringier and the TX Group. We can also mention consumer products with Digitec that was acquired by Migros. In watchmaking, Breitling is now controlled by the Partners Group. Whether insurance companies, retail groups or the media, we see that many established companies need to buy small and particularly innovative structures in a specific field to complete their portfolio of activity.

What resources do you have in Switzerland?

Houlihan Lokey has a staff of approximately 30 people based in Zurich. This focuses on mid-market, or “mid-market” transactions, as it is called in English. We have the advantage of being able to count on the global network of Houlikan Lokey, which has around 50 offices around the world, which allows us to offer certain services, namely at the IPO Advisory level, that is, advice for a listing . Previously, this is a service that GCA could not offer when this framework was active alone (note: the integration of GCA Corporation into Houlihan Lokey was completed in December 2021).

What services do you offer in terms of IPO Advisory?

We represent the interests of issuers and are independent of the interests of investors who buy shares in an IPO. Specifically, we assess what is the best price that can be obtained and assess some strategic issues in relation to the IPO. On the other hand, it is not our job to place stocks with investors, for example.

“Among private companies, there was certainly also a correction in terms of valuations, but this drop was not as brutal as in the stock market.”

The “IPO window”, as it is sometimes called, is almost closed now. If a company has already started preparing for an IPO, what should it do now?

Currently, the window for IPOs is effectively completely closed, as it is for SPACs. This is also explained by the fact that the value of companies listed on the stock exchange has fallen much more – with a fall that often exceeds 30% since the beginning of the year in certain segments – than in private markets. Among private companies, there was certainly also a correction in terms of valuations, but this fall was not as brutal as in the stock market. In private markets, there are still transactions that continue to gain value. In the current context, it is actually better to keep your IPO preparation file fresh and wait for a more favorable situation in the stock market to return.

However, this does not mean that preparations for an IPO were in vain. In fact, preparing for an IPO usually requires at least between 4 and 8 months. If a company is waiting for market conditions to be great again before starting work, it’s a safe bet that the window of opportunity is already starting to close by the time it’s ready to take the plunge.

In the absence of improvements in the possibility of going public, shouldn’t companies plan a plan B?

It’s always important to have a plan B – and, in the end, the IPO is just one opportunity to raise capital among others. It is also possible to sell a company, or part of it, to a private equity fund. Or sell it to a large group – many large companies currently have huge piles of cash and are looking for takeover opportunities. Multinationals such as Nestlé, for example, regularly acquire different companies or brands, mainly with the aim of gaining better direct access to customers through a “direct-to-consumer” approach. In some situations, it also happens that companies that initially intended to carry out an IPO appear on the radar of large groups and, finally, opt for an M&A type operation.

“Many investors always have deep pockets. I don’t think the entire market is going to collapse!”

In early June, a major transaction was announced in Switzerland with the merger between the Geneva-based firm Firmenich and the Dutch DSM. Do you foresee other major transactions in the coming months – or is this more of an exception?

When the economic situation changes on a global scale, as it has in recent months, it also brings many changes for companies: raw material costs increase, as do distribution costs due to disruptions in supply chains. That’s why many companies are now encouraged to join forces to improve their efficiency and reduce their costs. In this context, I hope that there will be more reconciliations of this kind.

What are your impressions of the current market situation?

The situation varies from sector to sector. When it comes to ‘technology’, it is clear that tech companies have gotten very expensive in the past year. We went from a situation of “overpricing” to a certain normalization. Now, despite the recent correction, I also note that there are still large amounts of capital available in the markets – many investors still have deep pockets. I don’t believe the whole market will collapse! And after every crisis, there is a recovery.

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