GERMANY Law and Practice Contributed by: Georg Linde and Kamyar Abrar, Willkie Farr & Gallagher LLP
partners of the lead fund invest passively alongside the GP. • LP co-investors generally hold non-controlling stakes, governed by co-investment agreements that provide for exit mechanics and governance rights. • Strategic co-investors, such as family offices or sovereign wealth funds, occasionally participate where sector expertise or long-term alignment is desirable. • Mixed consortia of financial and corporate inves - tors are rare but may be employed in infrastructure or energy transition deals. 6. Terms of Acquisition Documentation 6.1 Types of Consideration Mechanism In German private equity transactions, the predomi - nant pricing mechanisms remain locked-box and closing accounts. Locked-box structures are typically favoured in auction processes and by private equity sellers due to the price certainty they offer, while clos - ing accounts are more prevalent in bilateral or com - plex deals, as they allow for post-closing adjustments. Earn-outs, deferred payments, and equity rollovers are frequently employed to bridge valuation gaps, particularly in founder-led or growth-stage transac - tions. Equity rollovers are especially common where existing management retains an equity stake to ensure post-closing alignment. Private equity sellers typically prefer locked-box pric - ing mechanisms and rely extensively on warranty and indemnity (W&I) insurance to limit post-completion lia - bility. Conversely, buyers (notably private equity funds) often advocate for completion accounts to ensure financial precision. Compared to strategic corporate acquirers, private equity investors tend to adopt more standardised and risk-mitigated approaches to pricing and liability allocation. 6.2 Locked-Box Consideration Structures In transactions that use a locked-box mechanism, it is standard practice for the equity consideration to accu - mulate a fixed daily amount (known as a “ticker”) from
the locked-box date until the closing. This arrange - ment compensates the seller for the buyer’s delayed access to the target’s economic benefits. This “inter - est” is typically structured as a predetermined daily cash amount, often based on the target’s cash flow projections rather than prevailing debt market rates. Should any value leakage (ie, unauthorised transfers to the seller or its affiliates) occur during the locked- box period, a reverse interest or penalty rate is com - monly applied to the leaked amount. These measures are designed to preserve economic equivalence and disincentivise unauthorised value extraction. 6.3 Dispute Resolution for Consideration Structures German private equity transaction documents fre - quently incorporate expert determination clauses to resolve post-closing disputes arising under comple - tion accounts or earn-out provisions (for instance, in relation to net debt or working capital calculations). The appointed expert is typically a neutral accounting professional whose determination is binding, save for manifest error. In contrast, locked-box structures typically do not require post-closing financial adjustments due to their fixed-price nature. Nevertheless, disputes may still arise in connection with alleged leakage or breach - es of locked-box protections, and such claims are typically resolved through general dispute resolution clauses, such as arbitration or litigation, rather than expert determination. The chosen pricing model often dictates the dispute resolution framework. 6.4 Conditionality in Acquisition Documentation German private equity transactions are generally char - acterised by limited conditionality. Conditions prec - edent typically relate to essential regulatory approvals, particularly merger control and FDI clearance. Financ - ing conditions are highly atypical, particularly in com - petitive auction settings, where sellers expect “certain funds” commitments (ie, fully committed financing at signing). Material adverse change (MAC) clauses may occa - sionally be negotiated but are rarely invoked and
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