GERMANY Law and Practice Contributed by: Georg Linde and Kamyar Abrar, Willkie Farr & Gallagher LLP
5.3 Funding Structure of Private Equity Transactions Private equity transactions in Germany are typically financed through a combination of equity and debt, with the capital structure tailored to the size, complex - ity, and risk profile of the deal. The sponsor generally provides the equity portion via a dedicated acquisi - tion vehicle (BidCo), and it is standard practice for the seller to receive an equity commitment letter from the fund or a controlling investment entity. This document contractually secures the availability of equity capital and is a critical component in establishing funding certainty at signing, particularly in competitive auction processes. Due to German notarisation requirements, where a limited liability company is the target, equity commitment letters are typically notarised together with the main transaction documentation. For the debt-financed portion, the approach depends on market conditions and deal dynamics. In larger or time-sensitive transactions, debt commitment letters from financing banks or private credit funds are com - monly provided at signing and attached to the SPAs. Term sheets and limited conditionality typically accom - pany these to assure the seller that the full purchase price will be available at closing. In situations where formal commitments have not been established yet, sellers may request alternative forms of comfort, such as highly confident letters, financing process updates, or even break-up fees tied to financing failure. Over the years, tighter monetary policies and elevat - ed interest rates have made leveraged finance more selective and expensive, especially for large-cap transactions. Consequently, there has been a notice - able shift towards securing more solid financing commitments early in the deal process. Additionally, private equity sponsors have increasingly turned to private credit funds, which offer more flexible struc - tures, faster execution, and, in some cases, greater certainty of funding. 5.4 Multiple Investors Club deals, or multi-sponsor acquisitions, are uncom - mon in the German mid-market, but occasionally occur in large-cap or sector-specific transactions. More common are LP co-investments, where limited
Both one-on-one negotiations and structured auction processes are typical in the German market. As a gen - eral pattern, larger or highly sought-after targets are more likely to be sold through a competitive auction. In bilateral deals, private equity investors often have greater scope to negotiate transaction terms, includ - ing warranties, indemnities, and pricing mechanisms. This allows for a more customised allocation of legal and commercial risks. By contrast, auction sales tend to be more rigid. The seller typically imposes a pre- drafted, standardised set of terms via a sell-side SPA (with limited flexibility for amendment). Timelines are tighter, competition is stronger, and bidders are gener - ally expected to conform to the seller’s process, leav - ing less room for individual due diligence or custom - ised structuring. However, auctions often yield higher valuations for sellers, making them an attractive route for exits. 5.2 Structure of the Buyer Private equity-backed acquisitions in Germany are typically structured through a dedicated special pur - pose vehicle (SPV), commonly referred to as “BidCo.” This entity is incorporated specifically for the purpose of executing the transaction and serves as the for - mal buyer under the acquisition documentation. The BidCo is usually controlled by the private equity fund or its affiliated investment entities and is capitalised through a combination of equity and debt, depending on the financing structure. The private equity fund itself does not normally appear as a direct party to the share or asset purchase agree - ment. However, it often plays a decisive role behind the scenes in negotiating key terms and shaping the transaction structure. In certain cases, particularly in competitive auctions or when additional comfort is required, fund entities may be asked to provide guar - antee arrangements or other forms of investor support to backstop the BidCo’s obligations. Overall, the fund remains strategically involved throughout the process but generally avoids taking on direct contractual liability in the transaction docu - ments, maintaining a layer of separation through the SPV structure.
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