GERMANY Trends and Developments Contributed by: Anselm Lenhard and Philipp Büchler, LARK
Democrats and centre-left Social Democrats, which prematurely replaced the hapless coali- tion between Social Democrats, Greens and pro-business Free Democrats that had been marred by infighting. In response to major geo- political shifts, Germany also recently loosened its constitutional “debt brake” (which had led to crippling underinvestment in defence and infra- structure) to allow for, in principle, unlimited defence spending as well as major spending on infrastructure. It is not yet known how the new governing coali- tion and the expected massive increase in public spending will affect the general economic cli- mate in Germany, and its effect on inflation and the interest rate environment remains unclear – all factors that also impact M&A activity. Even if the expected changes in the general political framework have a positive impact, unrelenting geopolitical volatility continues to present seri- ous headwinds to the German industrial model.
Nevertheless, there are signs of an increase in M&A and acquisition financing activity. The industry has long awaited a surge in deal mak- ing, and this expectation now finally seems likely to materialise in 2025. Market participants have somewhat adapted to certain challenges of past years (such as the higher interest rate environment), and some further interest rate cuts are expected, all leading to a narrowing of the valuation gap between sellers and buyers that has impacted M&A activity since the sudden increase of interest rates in 2022. While the focus of investors and lenders on cer- tain sectors is expected to continue, an increase of acquisitions of distressed assets from sectors and businesses hardest hit by the (macro)eco- nomic shifts and the ongoing economic uncer- tainty also seems possible.
220 CHAMBERS.COM
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