GERMANY Trends and Developments Contributed by: Georg Linde, Kamyar Abrar and Florian Dendl, Willkie Farr & Gallagher LLP
More Buyer-friendly SPAs In 2025, SPA drafting is still marked by a clear shift towards buyer-favourable terms. Purchase price mechanisms have moved away from locked-box mod - els in many deals, with closing accounts and working capital adjustments becoming more common again, allowing buyers to capture value changes between signing and closing. Specifically, closing accounts are particularly preferred in carve-out scenarios, and the growing trend towards corporate carve-outs in the past year has further contributed to their resurgence in the German market. Material Adverse Change (MAC) clauses are becom - ing more precise and are often tailored to sector- specific risks, such as regulatory changes relating to AI, cyber events or supply chain disruptions. There is also a greater willingness to negotiate “hell or high water” obligations in regulatory filings, as well as more stringent covenants around financing. Consistent with expectations, the use of, and perceived need for, a MAC clause is directly correlated with the level of eco - nomic and political uncertainty in the market. Buyers are also placing greater value on compre - hensive representations and warranties, supported by thorough disclosure schedules. Meanwhile, W&I insurance remains prevalent in European private M&A, particularly in mid- and large-cap deals. How - ever, buyers are encountering narrower coverage and more exclusions, particularly in deals involving emerg - ing technologies or heightened environmental, social and governance (ESG) exposure. Overall, legal structuring in SPAs reflects a market environment where buyers are increasingly risk-aware and assertive, leveraging precise covenants, broader conditionality, and tailored indemnity regimes to man - age valuation gaps, operational volatility, and regula - tory uncertainty. Summary 2025 marks a continued solid recovery that began in 2024, with deal activity gaining momentum across most segments, particularly in the resilient mid-cap sector. Stabilised interest rates, increasing exit activ - ity, and a gradually narrowing valuation gap have contributed to a more predictable transaction envi -
tied to how effectively firms implement and scale AI across their holdings. Investment focus Firms are targeting AI-native and AI-enabled busi - nesses, particularly in sectors like healthcare tech, industrial automation, and B2B SaaS. These busi - nesses typically command higher valuations but require sophisticated integration and regulatory navi - gation. For many GPs, this is a long-term thematic bet on the infrastructure layer of the future economy. Deal sourcing and due diligence AI is transforming front-end deal flow, enabling faster, data-driven sourcing and deeper insights during due diligence. New legal, IP, and compliance risks AI-focused deals introduce new legal complexities around IP, data ownership, algorithm transparency, and compliance. Regulatory frameworks such as the EU AI Act are rapidly evolving, creating uncertainty around compliance. For cross-border transactions, private equity legal teams must now assess not just target performance, but also model transparency, data sovereignty, and auditability. Regulations Regulation – especially with respect to antitrust and foreign investment reviews (FDI) – is now crucial to deal planning for GPs, LPs, and transaction counsel alike. Germany remains one of the strictest jurisdic - tions, particularly in healthcare, AI, and digital infra - structure. Below-threshold deals are increasingly scrutinised, leading to longer review periods and more engagement with regulators. The Foreign Subsidies Regulation (FSR) is also gain - ing relevance. While private equity firms rarely receive direct subsidies, capital originating from non-EU sov - ereign wealth funds or development banks may fall within the scope, triggering disclosure obligations even in indirect cases. Given the ambiguity of defini - tions and limited precedent, many firms now file pre - cautionarily in large- and mid-cap transactions.
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