LUXEMBOURG Law and Practice Contributed by: Marcus Peter and Kate Yu Rao, GSK Stockmann SA
1. Trends 1.1 M&A Market
1.2 Key Trends The number of M&A deals steered through Luxem - bourg vehicles into other markets remains high, even as domestic deal volume is relatively small and mostly focused on the financial sector. Political stability, the robust legal framework and the growing fund and finance industries contribute to making the Luxem - bourg market a key hub for cross-border transactions, facilitating a significant volume of M&A activity target - ed at European-based assets through Luxembourg- based structures. There is a mix of private and public M&A transactions in Luxembourg, while the key sectors remain diverse, and M&A targets are typically located outside of Lux - embourg. M&A transactions with European targets ini - tiated from a Luxembourg (investment fund or other) structure remain common due to the attractiveness of the stable and positive legal and business environ - ment in Luxembourg. In recent years, the structuring of M&A deals has evolved in response to increasing market complex - ity and risk factors. For instance, the due diligence process has become increasingly crucial, requiring deeper assessments of the financial conditions and the impact of external factors such as the energy cri - sis, recent geopolitical tensions and inflationary pres - sures on the target companies’ business volumes (including supply chain, imports and exports, currency controls, business continuity, insurance and risks to material contracts). At the same time, the growing use of AI-driven tools has significantly accelerated due dil - igence processes, enabling more efficient data review, risk identification and document analysis, while also raising new considerations relating to data accuracy, cybersecurity and regulatory compliance. While the impact of the COVID-19 pandemic has largely subsid - ed, heightened importance has been given to discus - sions on material adverse change clauses or political force majeure elements, along with a more thorough evaluation of compliance risks, including AML/KYC and sanctions compliance, as well as counterparty and governance risks associated with a potential investment. In addition, ESG matters have become an important element for M&A due diligences.
The EU M&A market faced headwinds in 2023 and 2024 due to persistent macroeconomic uncertainty, geopolitical tensions, and rising interest rates. These circumstances impacted market sentiment, valua - tions, and the cost of debt financing deals, leading to an overall decrease in cross-border M&A volumes globally and in the Luxembourg market, although cer - tain resilient sectors showed selective deal activity in the second half of 2024. However, 2025 has seen a clear rebound in both deal values and M&A activity compared with 2024, sup - ported by falling volatility in interest rates, improved investor confidence and more favourable financing conditions. In Luxembourg, M&A activity has accel - erated further in 2025, driven by sector-specific con - solidation and strategic acquisitions, especially in financial services, asset management and technology sectors. Looking ahead to 2026, deal makers remain cau - tiously optimistic. Market forecasts anticipate fur - ther acceleration in M&A activity as macro-economic conditions stabilise and private equity firms seek to deploy uncommitted dry powder accumulated during recent years. Financing conditions are expected to improve further, encouraging both corporate acquirers and financial sponsors to pursue strategic transac - tions with greater confidence. Additionally, companies are seeking to enhance their competitiveness in the evolving market landscape through supply chain restructuring, energy transition policies, digital transformation and the rapid integra - tion of AI, further fostering deal opportunities. At the same time, ongoing legislative and regulatory developments continue to play a significant role in shaping M&A activity, impacting deal structures, com - pliance requirements and strategic decision-making for both companies and investors. These regulatory dynamics remain key market drivers alongside tradi - tional financial and strategic considerations.
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