GERMANY Trends and Developments Contributed by: Georg Linde, Kamyar Abrar and Florian Dendl, Willkie Farr & Gallagher LLP
iff regimes and align more closely with digitalisation trends. Meanwhile, the rise of protectionist policies worldwide is introducing new challenges: • elevated import duties; • intricate certification requirements; and • mounting compliance costs. These factors are prompting dealmakers to embed trade and geopolitical risk considerations more deeply into their investment strategies and diligence pro - cesses. Consequently, heightened scrutiny around supply-chain resilience has extended deal timelines and accelerated the shift towards alternative financing structures such as private credit, co-investments, and earn-outs in order to manage valuation discrepancies and increase flexibility. Fundraising Challenges Remain, Redefining General Partner Strategy Global fundraising declined by 20‑25% in 2024, a trend that was mirrored in Germany. In 2025, fund - raising continues to pose one of the most pressing challenges in the private equity landscape. Despite signs of macroeconomic stabilisation and a resur - gence in exit activity, general partners (GPs) continue to face a constrained fundraising environment, largely driven by a persistent liquidity crunch among limited partners (LPs). Distributions as a percentage of NAV have reached their lowest level in over a decade, leav - ing LPs with minimal recycled capital to reinvest. This situation has created a vicious cycle: fewer exits in recent years have reduced liquidity for LPs to invest, which in turn delays capital commitments to new funds and forces GPs to extend their holding periods. However, rising exit activity in late 2025 or early 2026 could help break this cycle. Compounding this issue is the overhang of “dry pow - der” from earlier fund vintages. With asset valuations still considered elevated in many sectors, LPs are questioning the urgency to re-up. Additionally, short- term performance metrics remain muted, as many exits were delayed due to valuation mismatches or market volatility. In response, GPs have turned to adaptive fundrais - ing strategies. Fee discounts for anchor investors,
expanded access to co-investment opportunities, and customised liquidity options have become standard in competitive fundraising processes. The present trend of continuation vehicles and fund-to-fund transac - tions has accelerated, enabling GPs to offer liquidity to existing LPs while redeploying capital into familiar assets. Another shift is structural: GPs are increasingly court - ing private wealth and non-institutional capital through semi-liquid funds, open-ended vehicles, and wealth management partnerships. This diversification is not only compensating for institutional pullback but also transforming capital formation models. As a result, the fund landscape transforms. The total number of funds has declined. Investors are concen - trating capital with large, established managers that offer proven track records or a sharply differentiated strategy. Scale, brand, and specialist expertise are becoming essential to fundraising success. Valuation Gap Has Not Yet Disappeared Throughout 2024, numerous deal processes either stalled or collapsed entirely due to persistent mis - matches in valuation expectations. Sellers remained anchored to pre-2022 price benchmarks while buy - ers adjusted for increased financing costs, geopoliti - cal risk, and lower earnings baselines. This led to an increase in structured deals – such as earn-outs, ven - dor rollovers, and minority stakes designed to defer valuation risk and bridge the pricing gap. By 2025, the anticipated stability of interest rates and easing inflation have been slightly enhancing buyer sentiment. Dealmaking conditions have modestly improved, exits are gaining momentum, and some sellers are beginning to align with the new market real - ity. The scarcity of high-quality assets, especially in tech and AI, has supported selective premium pricing, where clear value-creation potential exists. However, the valuation gap remains especially pro - nounced in Europe. In sectors like AI, a capability- based premium, where proprietary technology or IP justifies a higher valuation, often clashes with more conservative buyer models and stringent due diligence requirements. In Germany and the EU, dealmakers
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