GERMANY Law and Practice Contributed by: Georg Linde and Kamyar Abrar, Willkie Farr & Gallagher LLP
For both GPs and their portfolio companies, the compliance burden is rising. ESG metrics are now increasingly embedded in investment decisions, gov - ernance frameworks, transaction documentation, and debt covenants. LPs are also demanding robust ESG integration at the fund level, which is accelerating the institutionalisation of sustainability across the private equity lifecycle. 3. Regulatory Framework 3.1 Primary Regulators and Regulatory Issues In Germany, private equity transactions fall under the purview of multiple regulatory bodies. The most rel - evant authorities are: • the German Federal Cartel Office ( Bundeskartel- lamt ) and the European Commission – responsible for merger control under German and EU competi - tion law; • the Federal Ministry for Economic Affairs and Energy ( BMWE ) – which oversees foreign direct investment (FDI) screening and economic security; • the Federal Financial Supervisory Authority ( BaFin ) – which regulates financial services providers, fund managers, and capital market participants. Each authority plays a distinct role, and their oversight can overlap depending on transaction size, target sec - tor, and investor origin. Merger Control Private equity deals are subject to merger control under the German Act against Restraints of Compe - tition ( GWB ) and, where applicable, the EU Merger Regulation. Transactions exceeding statutory thresh - olds must be notified to the Bundeskartellamt or the European Commission. The thresholds consider the worldwide and domestic turnover of the buyer and target (eg, EUR500/EUR50 million/EUR17.5 million under German law). The Bundeskartellamt clears most transactions in Phase I without conditions, but complex deals, par - ticularly in consolidated industries or where vertical integration poses risks, may trigger Phase II reviews.
Strategic exit planning must account for potential clearance delays or remedies. Foreign Direct Investment (FDI) Screening Recent legislative changes in Germany (see above) have tightened FDI screening, expanding the num - ber of sectors covered and lowering filing thresholds. The screening process differentiates between sector- specific reviews for traditionally sensitive areas like military, defence, and IT security, and cross-sectoral reviews for critical infrastructure, healthcare, biotech, AI, and other industries. The FDI rules apply more rig - orously to non-EU/EFTA investors and are particularly stringent for investors from countries such as China, Russia or the Middle East. The BMWE tends to scru - tinise investments from these regions more critically. Although the total number of cases reviewed by the BMWE has slightly decreased since 2022, the overall level of scrutiny remains high, particularly for investors from the regions mentioned above. In-depth reviews have become less frequent; however, the political vis - ibility of transactions can significantly influence out - comes. EU Foreign Subsidies Regulation (FSR) Since July 2023, the EU FSR has introduced a new layer of regulatory oversight for transactions involv - ing non-EU financial support. A notification is required where: • the target or merging parties have a combined EU turnover of EUR500 million or more; and • they received more than EUR50 million in non-EU financial contributions in the previous three years. This regulation is increasingly treated as a closing condition, alongside merger control and FDI approv - al. Early enforcement trends (eg, Emirates Telecom’s acquisition of PPF Telecom) underscore the FSR’s ris - ing relevance in private equity transactions. Anti-Bribery, Sanctions, and ESG Compliance Germany has sharpened enforcement around ESG, sanctions, and anti-bribery compliance, particularly in light of the Corporate Sustainability Reporting Direc - tive (CSRD) and growing EU sanctions regimes relat - ed to Russia, Belarus, Iran and China. Private equity funds are increasingly required to conduct enhanced
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