Despite the many unique advantages that Switzerland offers as a listing location, in recent years companies have repeatedly decided to list abroad, consciously accepting the greater effort, higher costs and risks that this entails. In addition to the valuation to be achieved at the time of the IPO, other important aspects should not be ignored and it is advisable to thoroughly evaluate where long-term, sustainable shareholder value can be achieved, while at the same time ensuring that the requirements imposed on a publicly traded company by both investors and the regulator can be met in the best possible way.
The Cost and Risk Case for Switzerland
While a listing on a foreign exchange and the resulting exposure to multiple jurisdictions is generally an expensive and legally challenging matter, a listing in the US is particularly demanding.
Compared to an IPO in Switzerland, going public in the US usually comes at an additional cost. The difference can be material, especially for small companies. Underwriting fees tend to be higher and the costs for legal and tax advice increase substantially as a company needs to appoint both a Swiss and a US law firm (also for the underwriters, as a result of which at least four law firms will be involved). What is more, companies need to file a registration statement with the SEC (Securities and Exchange Commission), a notoriously resource-heavy and time-consuming undertaking, while the disclosure requirements are equally onerous. In Switzerland, on the other hand, companies benefit from an efficient listing process, thanks to the self-regulation enshrined in in its financial market regulations.
There are also significant risks when listing in the US. While an IPO always changes a company’s risk profile, as it draws increased scrutiny from regulators, potential plaintiffs’ attorneys and the public, the regulatory and legal environment in the US is particularly challenging. Between 2010 and 2019, 14% of all US IPOs were targets of litigation1, with the risk of a securities lawsuit being particularly high, whereas under Swiss law, plaintiffs must meet substantially higher requirements for a prospectus liability claim to be successful. As a result, a US listing typically requires companies to have directors' and officers' ("D&O") insurance policies, which are expensive and can put a strain on a firm’s P&L.
Furthermore, a US listing of a Swiss incorporated company can have far-reaching consequences on takeover protection. In such cases, neither Swiss nor US takeover rules apply, which makes companies vulnerable to unsolicited takeovers.
Given these implications for risk and costs, Swiss companies ought to be rethinking whether it makes sense to list in the US, especially as it is possible for them to access US investors (in addition to cash-rich domestic Swiss allocators) by including a Rule 144A offering in their IPOs on SIX Swiss Exchange.
Enhance Your Visibility
While Switzerland has a more diminutive equity capital market than the US, there are some advantages to being nimble. With a yearly average of around 230 IPOs2 in the US over the last five years and several thousand listed companies, the number of listed peers and specialized analysts is much higher in the US than in Switzerland. However, the flip side of this is that companies get overlooked more easily. SIX Swiss Exchange addresses this problem with Sparks, its dedicated equity segment for SMEs, and ancillary offerings, such as Stage and Bridge.
Think Carefully About Where You List
The choice of listing venue is first and foremost a strategic decision. Going public on SIX Swiss Exchange offers extensive benefits, including a more company-friendly legal environment, an efficient listing process, high visibility and constant attention from investors and the media, together with access to substantial pools of capital and long-term institutional investors in both Switzerland and the US.
Read the full case study conducted by Homburger and SIX Swiss Exchange here.
1 Stanford Law School & Stanford Securities Litigation Analytics (2021). IPO Litigation Risk. In the D&O Diary.
2 IPOs on the NASDAQ and the NYSE from 2017-2021