GERMANY Law and Practice Contributed by: Georg Linde and Kamyar Abrar, Willkie Farr & Gallagher LLP
1. Transaction Activity 1.1 Private Equity Transactions and M&A Deals in General The recovery in private equity activity observed in 2024 has gained further momentum in 2025. Aggre - gate deal volume and value in Q1 2025 increased sub - stantially compared to Q1 2024, driven by improved macroeconomic conditions. Declining inflation and successive interest rate cuts have created more favourable conditions for leveraged transactions. In particular, the mid-cap segment has regained momen - tum, accounting for the majority of new transactions, benefitting from its relatively lower risk profile, better financing access, and reasonable valuation levels. Despite the resurgence in activity, valuation discrepan - cies remain a prominent challenge, particularly in high- growth sectors like tech and AI. Buyers are increas - ingly relying on structures such as earn-outs, staged acquisitions, and minority stakes to reconcile price expectations and mitigate downside risks. Meanwhile, exit activity has accelerated, enabling general partners (GPs) to return capital to liquidity-constrained limited partners. However, public capital markets remain only selectively open for IPOs, prompting a continued reli - ance on sponsor-to-sponsor transactions, secondary buyouts and partial exits. Fundraising conditions remain demanding, with lim - ited partners requiring more differentiated strategies, operational value creation and ESG alignment. As a result, only sponsors with strong track records or the - matic expertise are securing commitments, pushing general partners to adopt new structures like semi- liquid funds or co-investment platforms. 1.2 Market Activity and Impact of Macro- Economic Factors In 2025, the most active sectors in the German pri - vate equity market include: Healthcare and MedTech, industrial technology and automation, AI and data infrastructure, as well as energy transition strategies. Geopolitical instability, including the war in Ukraine, ongoing tensions in the Middle East, and deteriorat - ing trade relations with China and the United States, have contributed to market volatility and heightened
risk awareness. Although these challenges have not derailed deal activity, they have led to increased focus on operational resilience, more stringent due diligence, and higher premiums on “safe” domestic targets with lower geopolitical exposure. Of particular concern in 2025 are escalating trade ten - sions. The United States has signalled its intention to impose high double-digit tariffs on countries that do not enter into bilateral “sectoral” trade agreements with the United States. Negotiations are currently underway with the EU in an effort to maintain 10% tariffs on most goods. While these talks continue, uncertainty regarding the outcomes of the tariffs— particularly in crucial export sectors like steel, alu - minium, and automotive parts—is already noticeably affecting corporate strategies. German industrial play - ers, including Mercedes-Benz or Salzgitter are facing margin pressures as a result of existing tariffs and are actively reassessing supply chain configurations. This uncertainty is already slowing M&A processes: Due diligence periods are lengthening, valuation mod - els are increasingly incorporating tariff risks, exit time - lines are being extended, and overall processes are being delayed. However, upside potential can also be created for agile investors, being able to capitalise on market dislocations and mispriced assets. Other macro-economic trends, such as receding infla - tion, ECB rate cuts, and stabilised cost of capital, have made leveraged finance more accessible. How - ever, sponsors remain selective. Private credit con - tinues its recent success, especially in transactions under EUR250 million. Sponsors prioritise high-quality assets with clear EBITDA pathways, strong govern - ance and limited regulatory friction. In summary, macroeconomic normalisation, improved financing conditions and selective sectoral growth are underpinning Germany’s private equity activity in 2025. Yet, geopolitical fragility, the threat of tariffs and world trading uncertainties predetermine how and where deals get done.
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