GERMANY Trends and Developments Contributed by: Georg Linde, Kamyar Abrar and Florian Dendl, Willkie Farr & Gallagher LLP
Valuation alignment Unlike in large-cap deals, buyer and seller expecta - tions in the mid-cap space are often closer, as valu - ations are based more on operational fundamentals. Founders and family-owned businesses typically approach pricing more pragmatically than institutional sellers. Large cap transactions on the sidelines Meanwhile, large-cap transactions have yet to make a significant comeback in 2025. Sponsors remain cau - tious, wary of supply chain disruptions, cross-border regulations, and valuation volatility. These deals are particularly vulnerable to global supply chain risks and valuation fluctuations driven by broader market senti - ment and competitive auction dynamics. However, if macro conditions stabilise and trade tensions ease, potentially in late 2025 or early 2026, there is potential for renewed activity, especially in strategic sectors like industrials and consumer goods. Portfolio work remains a strategic priority Portfolio value creation remains a central priority in 2025. With financing costs still elevated and acquir - ers unwilling to pay pre-2023 valuation multiples, GPs are under pressure to position portfolio companies for credible, high-multiple exits. This increasingly involves not just EBITDA improvement but also alignment with ESG, regulatory, and compliance expectations – factors that are now deal-critical. A major factor to consider is the integration of AI, big data, and digital tools into portfolio management. These technologies are becoming core to creating scalable, tech-enabled, ESG-aligned businesses that will command stronger multiples in future exits. A&I and Technology AI has become embedded across the private equity value chain, reshaping how firms source deals, assess risks, and drive portfolio performance. Portfolio value creation Private equity firms are integrating AI directly into the operations of their portfolio companies, from predic - tive sales models and dynamic pricing to automated supply chain and workforce planning and even auto - mated ESG reporting. Value creation is increasingly
now evaluate valuation on readiness for monetisa- tion, scalability, and regulatory resilience, particularly in light of frameworks like the EU AI Act. Mid-Cap in Focus, Large-Cap Comeback Delayed Deal activity in 2025 is defined less by volume than by strategic intent. While overall buyout value rebounded in 2024, the resurgence has been led less by large-cap transactions, but more by a consistent upward trend in mid-cap transactions. These deals typically offer more reasonable valuations, lower regulatory scrutiny, and significant room for operational improvement, espe - cially when enhanced through digital and AI tools. In contrast, large-cap transactions remain scarce and rely heavily on structured financing, co-investment, or private credit. Uncertainty around macroeconomic conditions, cross-border regulations, and geopolitical tensions continues to deter activity in the large-cap space. Across the board, current deal types reflect a thematic and tactical approach. Current trends include: • take-privates of undervalued publicly traded com - panies; • carve-outs from conglomerates seeking focus and liquidity; • continuation vehicles to extend holding periods; and • AI/data-driven investments, especially in health - care, industrial tech, and B2B SaaS. The upward trend in mid-cap transactions is a func - tion of structural, financial, and strategic realities con - verging. Financing access Traditional senior debt remains available for these deal sizes, and private credit providers are prioritising mid-sized borrowers where risk is easier to manage and syndication is less complex. We see that private debt is currently undergoing significant transforma - tions. For years, the asset class – especially direct lending – benefited from traditional banks retreating from the leveraged lending space. However, recently, banks and syndicated lenders regained market share.
221 CHAMBERS.COM
Powered by FlippingBook