GERMANY Law and Practice Contributed by: Georg Linde and Kamyar Abrar, Willkie Farr & Gallagher LLP
10. Exits 10.1 Types of Exit
The scope of these reserved matters is intentionally broad to ensure that the private equity fund retains oversight and control over any strategic decisions that could materially affect the value of its investment. Information Rights Extensive information rights are standard, granting private equity investors access to regular, detailed financial and operational reports. Typically, these include quarterly and annual financial statements, management accounts, and operational KPIs. Addi - tionally, private equity investors often have the right to request ad hoc information to closely monitor the company’s performance and respond proactively to emerging issues. 9.2 Shareholder Liability In Germany, where the portfolio company is common - ly structured as a limited liability company (GmbH), the principle of separate legal personality generally protects private equity funds from direct liability for the company’s actions beyond their capital contribution. However, liability risks may arise if the private equity fund is deemed to exercise de facto management over the GmbH. This situation can occur if the fund is deeply involved in the day-to-day operations or strate - gic decision-making of the company, effectively acting as a manager rather than merely as a shareholder. Under such circumstances, the fund could be held liable for certain management actions or obligations, provided specific conditions are met. In rare cases, German courts (notably the Bundesgerichtshof ) have imposed liability where sponsors caused unlawful pay - ments post-insolvency or were involved in fraudulent asset stripping. Liability may also arise where there is improper commingling of shareholder and company assets or unjustified withdrawals of value that threaten the company’s solvency. Additional exceptions to the principle of separate legal personality, although typically less relevant in private equity contexts, include situations involving the mix - ing of shareholder and company assets or the with - drawal of assets without adequate compensation that threatens the company’s survival.
In Germany, the most common form of private equity exit remains private sales to other private equity inves - tors (secondary buyouts) or strategic corporate buy - ers. While exits via IPOs or through corporate restruc - turings, such as mergers or spin-offs, do occur, they are comparatively rare due to market volatility and regulatory complexity. Notably, the IPO market has been struggling recently, leading to numerous cancel - lations or postponements of planned listings. Dual-track exit strategies, where a company is simul - taneously prepared for an IPO and a private sale, are occasionally used in large-cap deals. This approach helps maximise value by maintaining flexibility and creating competitive pressure between bidders and the public market. However, outside of these large- cap situations, as seen in the case of Techem, “dual- track” processes are quite rare in Germany. “Triple-track” exits, which add a recapitalisation pro - cess alongside an IPO and a sale process, are even less common but may be deployed in complex exits or where valuation uncertainty persists. Private equity sellers in Germany do not typically roll over or reinvest upon exit. Instead, they often seek a complete exit to return capital to their investors. How - ever, in some cases, especially in secondary buyouts, there may be a partial reinvestment or rollover reflect - ing strategic alignment or continuity incentives. This ongoing trend is expected to continue in 2025. 10.2 Drag and Tag Rights Drag-along and tag-along rights are standard features in German private equity shareholder agreements and play a key role in managing shareholder relations dur - ing exit scenarios. The drag-along threshold, which allows majority shareholders to require minority shareholders to sell their shares, is typically set at around 50% of the vot - ing rights. This ensures that a controlling shareholder can initiate a clean exit, even without unanimous con - sent.
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