M&A Guide 2025: Germany

In 2024, the German M&A market showed resilience, maintaining steady activity despite geopolitical and economic challenges. Early signs of recovery appeared with declining inflation and interest rates, boosting market confidence.

Strategic transactions led the market, with companies focusing on supply chain security, digitalisation, and energy transition, creating investment opportunities in technology and expansion. There is a trend towards ‘carve-out’ transactions focusing on forward-looking motives and situations such as ongoing innovation and strategic realignment for sector-specific growth in technology, healthcare, and diversified industries. A potentially more favourable US regulatory environment is expected to further encourage outbound M&A activity, thus enabling, for example, strategic buy-ins within and outside Germany.

As interest rates stabilise, financial investors may find debt capital more accessible, enhancing dealmaking. Private equity (PE) funds are still experiencing enormous pressure for capital returns and to sell assets that they have been owning for longer than they have traditionally.

Public and private M&A are both key for Germany, but it is fair to say that private deals are still dominating the league tables. This is also due to the generally high number of private companies in Germany compared with public companies, which differs from other jurisdictions.

In 2024, the public M&A sector experienced an upward trend compared with 2023, with Germany seeing 33 offers, marking a significant increase from the previous year. Notably, the number of delisting acquisition offers surged, surpassing the 2021 ‘delisting peak’ with a total of 20 offers. Conversely, exchange offers involving share consideration remained rare.

Last year’s prediction for 2024 to become a boom year for IPOs and public takeovers did not – again, after 2022 and 2023 – materialise. As the prospects for Germany’s economy appear to be improving, IPO activity is poised to rise in 2025.

Whether a company successfully goes public depends primarily on its individual performance and less on external influences. Profitable companies are particularly attractive to stock market investors, whereas pure growth companies are having difficulties as their shares are considered to be more volatile and risky, and their business models are often not yet established.

In 2024, German industrial companies played a key role in dealmaking, highlighted by Bosch’s $8.1 billion acquisition of a heating, ventilation, and air-conditioning business from Johnson Controls and Hitachi, and Knorr-Bremse’s $700 million purchase of Alstom’s North American rail signalling business. These deals underscore the growing importance of the US market for German industrial companies to strengthen their market position and acquire expertise.

Siemens AG’s €10.2 billion takeover of Altair Engineering Inc. serves as a good example of German involvement in outbound mega-deals. This trend is not only driven by strategically selling ‘silverware’ in difficult times, but also by the implementation of, for example, certain sustainability principles, non-compliance with which means a competitive disadvantage that accompanies the obligations imposed by ESG.

Covestro’s acquisition by UAE state-backed oil and gas giant Adnoc may provide an insight into dealmaking trends in the year ahead. Adnoc is expected to use the German chemicals company as a platform for further buys of European and US chemicals assets. Deals with buyers from the Middle East will likely continue throughout 2025.

The energy transition is driving green energy deals in Germany. Notable was the $3.1 billion acquisition of Encavis by a KKR- and Viessmann-led consortium. Domestically, SEFE’s €1.5 billion acquisition of WIGA Transport was significant, while TPG Capital and GIC’s €6.7 billion takeover of Techem GmbH marked the largest financial investor transaction.

In 2024, German M&A activity gradually picked up, with signs of a global and European resurgence starting to appear in the country. While the number of transactions dipped below 2023 levels, the overall transaction value increased slightly, thanks to a few mega-deals.

Cross-border transactions dominated the German M&A scene, with a notable rise in deal volume involving foreign financial investors, particularly from the US and UK. Outbound M&A volume saw a slight increase over 2023, although it remains below 2020 levels due to limited domestic private equity funds.

German companies are increasingly investing in the US, anticipating rising tariffs on exports. Despite the overall slowdown, the industrial, energy, and technology sectors in Germany have shown resilience, especially in larger transactions. Additionally, financial buyers are showing interest in the German biotech and medtech industries.

A positive outlook for M&A activity is anticipated in 2025, with a projected 10% increase. This is supported by declining inflation, stable interest rates, and the expected political changes after recent elections.

The resurgence will be driven by major transformation trends, particularly in the automotive and energy sectors, alongside corporations focusing on carve-outs to divest non-core units and strategic acquisitions of new technologies. The technology and energy sectors continue to be pivotal growth areas, with the ongoing integration of AI and automation prompting companies to pursue strategic acquisitions to enhance market share.

Significant easing of transactions in highly regulated sectors such as energy and healthcare is anticipated. The energy sector is set for growth through investments in hydrogen technologies and green infrastructure, while the healthcare sector shows promise in biotechnology and medical technology.

Challenges such as persistently high energy costs, a weak domestic growth outlook, and the threat of trade tariffs are compelling many industrial companies to adapt. M&A is essential for corporate transformation and responding to geopolitical conditions, enabling the acquisition of new technologies.

In 2024, the M&A market transitioned to more of a buyer’s market, creating opportunities through innovative deal structures such as deferred payments and equity retention. Buyers continuously demand more guarantees, leading to a rise in warranty and indemnity (W&I) insurance policies.

Regulatory scrutiny continues to impact deal timelines, especially for larger cross-border transactions, necessitating longer preparation and negotiation.

Debt financing markets have stabilised, supporting deal activity with ample liquidity available. Private debt funds continue to be attractive alternatives to traditional bank loans, and PE is poised for increased activity in 2025 as PE funds are under enormous pressure to not only deploy record levels of unspent capital to return cash to investors but – for similar reasons – to sell assets that they have been owning for longer than they have traditionally.

On top of that, rising financial difficulties and structural challenges are prompting more companies to consider M&A for restructuring, with a 20% increase in major insolvencies expected in 2025, indicating a dynamic start to the year. Not only is distressed M&A a way for foreign investors to enter the market, but it reveals sales opportunities for innovation leaders or companies with high potential for improvement.

Financial sponsor activity is clearly rebounding. A long pipeline of portfolio companies is seeking monetisation as the pressure to return investments mounts. Since many PE exits were deferred in 2024, catch-up effects are expected in 2025. The stronger macroeconomic and financing environment is expected to fuel the monetisation of existing portfolio companies and the deployment of new capital. An increase in large-cap corporate carve-outs presents opportunities for PE. Secondary buyouts and family-owned companies continue to be seen as important sources of attractive targets in 2025.

The authors expect to see more deal types such as the following:

• Further public-to-private deals;

• Activist shareholders increasingly pushing for divestitures;

• Regulatory intervention (including blocked deals) continues to drive divestitures and carve-outs;

• More IPOs of large portfolio companies, with a stronger growth outlook for Europe leading to better valuations, creating value buy opportunities; and

• More ‘direct secondaries’ (transfer of portfolio, rather than limited partner interests).

Private M&A transactions are primarily structured as share or asset deals and are not subject to any particular statutory processes, other than regulatory clearances (see below), certain registrations, and/or the reissuance of permits.

In contrast, public M&A transactions have to comply with:

• The German Securities Acquisition and Takeover Act (the Takeover Act);

• The EU Market Abuse Regulation (Marktmissbrauchsverordnung); and

• The German Stock Corporation Act.

They are subject to the supervision of the German Federal Financial Supervisory Authority (BaFin).

In addition, any M&A transaction (private and/or public) that is deemed a concentration may be subject to European or German merger control. The primary goal of merger control is to prevent the creation or strengthening of market dominance that could impede effective competition.

Furthermore, transactions (private and/or public) in Germany may be subject to foreign direct investment (FDI) control, where the Federal Ministry of Economic Affairs and Climate Action (BMWK) can review acquisitions of German companies by foreign investors.

The BMWK may block acquisitions of 25% or more of the voting rights by non-EU/European Free Trade Association investors or require commitments if public order or security is at risk. A lower level of voting rights (10% or more) may block acquisitions in sensitive sectors, such as critical infrastructure or defence, and must be notified and cleared by the BMWK. The BMWK can also review acquisitions involving ‘atypical control’, such as board seats or voting rights, which are not subject to mandatory filing but may warrant a voluntary filing to avoid ex officio review.

Additionally, the EU Foreign Subsidies Regulation (FSR) grants the European Commission (EC) the authority to examine and address distortive subsidies. With the FSR in place, the EC can scrutinise a broad spectrum of M&A deals (subject to certain concentration benchmarks) that involve any firm benefiting from subsidies provided by non-EU nations. This additional regulatory tier is supplementary to the current merger control and FDI examination processes.

The range of business activities subject to Germany’s investment control law has significantly expanded, with the number of domestic company activities requiring a foreign investment filing having quadrupled in the past four years. Many emerging technologies – including AI, robotics, nanotechnology, and quantum technology – now fall under this reporting requirement. Other areas include cybersecurity, semiconductors, 3D printing, and automated vehicle and aerial systems.

The German government is in the process of significantly revising its FDI framework, which includes the introduction of a new Investment Screening Act. The act aims to uphold the principle of equal treatment for all shareholders, as mandated by the Takeover Act. Furthermore, the executive and supervisory boards of the company being acquired shall be bound by fiduciary responsibilities to prioritise the interests of the company and its shareholders. This may restrict the implementation of certain deal protection measures. The changes also aim to broaden the FDI regime’s coverage to include intellectual property licensing and to modify the industries with mandatory reporting.

At an EU level, the EC presented its Competitiveness Compass policy initiative in January 2025, reiterating the need for a fresh approach to competition policy to allow companies to scale up in global markets. The EC plans to prioritise innovation, resilience, and competitive investment intensity in specific strategic sectors.

Foreign investors continue to wonder about the notarisation requirements in Germany; in particular, in connection with German limited liability companies (GmbHs). Share purchase agreements, including all annexes, must be read out loud by a notary to the parties, which is a potentially long exercise. Even so, the notarisation process is generally no obstacle to any deal but serves as a disciplinary tool to complete negotiations and get the documentation in final shape. Costs can be considerable and need to be factored into the buyer’s transaction budget.

Depending on the deal structure, it is highly advisable to seek employment and tax advice early on, as German law has some unique peculiarities in these areas.

Most German dealmakers foresee AI significantly enhancing the due diligence process by improving risk assessment, compliance, negotiation, decision making, and post-merger integration. Despite these opportunities, many companies are still in the early stages of testing or implementing AI. Currently, German M&A practitioners use AI tools sparingly, prioritising the expertise of M&A teams and investment narratives over AI-driven screenings. AI is primarily used for preliminary research, with experts verifying the results.

Future top-tier M&A due diligence will require close collaboration between AI software and experienced professionals. German dealmakers acknowledge both the opportunities and challenges, such as data privacy and security, and are actively working to integrate AI into their processes.

The scope of legal documentation required for the acquisition of shares in a public company depends on the type of business combination chosen, as well as on the type of shares being acquired and whether these shares are to be acquired through the stock exchange, via a capital increase, or from other shareholders.

Holding 30% of the voting rights in a listed company amounts to ‘control’ under German takeover law. Any party that is about to reach or exceed this threshold, directly or indirectly, will need to consider a public takeover offer. Such an offer requires an offer document. Unsolicited takeover attempts are rare in Germany; in particular, since cooperation with the management is key for a successful integration of the acquired company into the bidder structure.

After the decision to launch an offer has been published, the management board is prohibited from taking any action that could prevent the success of the takeover offer (no ‘poison pills’). But the management board may:

• Search for a ‘white knight’;

• Take any action within the scope of the management board’s powers if approved by the supervisory board and if no further legal requirements exist; and

• Take actions that would have reasonably been taken if no offer had been launched, even if this limits the success probability of the offer.

Furthermore, the shareholders may, under certain restrictions, authorise the management board to take action within the scope of the powers of the shareholders’ meeting before, and independent of, any takeover offer.

BaFin takes a rather restrictive position on the possibility of imposing offer conditions, as outlined below:

• Voluntary public takeover offers – offers that are made by buyers that do not own shares in the target company or whose shareholding is below 30% are usually only subject to regulatory approvals, fairly standardised market and company material adverse change clauses, and no defensive measures (such as capital increases during the offer period) being taken. There is often a minimum acceptance threshold for offers, as the acquisition of only some of the shares may not be attractive.

• Mandatory offers – offers that are triggered once a shareholding of 30% is reached by one shareholder can only be made subject to regulatory conditions. Minimum acceptance thresholds are not permitted.

In public M&A transactions in Germany, parties can employ several deal protection measures to safeguard the interests of the acquirer and ensure the successful completion of the transaction. These include a prohibition on searching for alternative bidders (white knight), implementing structural measures (capital increases, mergers, etc.), or buying back its own shares. These measures are subject to legal and regulatory constraints, particularly under the German Securities Trading Act, the German Stock Corporation Act, and the Takeover Act.

Notably, deal protection measures in Germany must be carefully structured to comply with legal requirements and to respect the principle of equal treatment of all shareholders. Additionally, the management and supervisory boards of the target company have fiduciary duties to act in the best interests of the company and its shareholders, which may limit the extent to which certain deal protection measures can be implemented.

The 11th edition of the Latham & Watkins Private M&A Market Study (2024) shows that locked-box mechanisms for purchase price provisions, unlike in the US, remain popular, particularly among European PE buyers and sellers, but decreased among corporates compared with 2023. Earn-out usage continued to rise in the post-COVID years, most significantly among PE sellers, albeit that they remain uncommon overall. The use of earn-outs varies between sectors. Earn-outs seem to feature most prominently in healthcare and life sciences deals.

Escrows remain uncommon. Only 16% of deals in 2023 and 2024 featured an escrow. While gaining popularity among PE sellers compared with earlier editions of the study, the usage among corporate sellers is further declining. This decrease is in part due to the continued prevalence of W&I insurance, and sellers providing relatively limited covenants in a more seller-friendly market. The consistent reluctance also suggests that, despite buyers’ concerns about sellers’ ability to meet post-closing obligations, sellers are successfully resisting requests for a portion of the purchase price to be placed in escrow.

Share purchase agreements relating to German targets are usually governed by German law under the jurisdiction of German courts or arbitral tribunals. Depending on the specific preferences of the parties, agreements may also be made subject to non-German laws.

In 2024, a weak economy, rising financing costs, and an uncertain geopolitical environment led – besides persisting valuation gaps – to cautious investor behaviour and fewer exits. Trade sales, including sales to other investors, remained the main exit routes for private equity. As valuation gaps narrow and interest rates drop, exits are expected to rebound in 2025.

The IPO market remained modest, with Germany seeing four IPOs, raising $2.2 billion, similar to the previous year but below 2021 levels. Optimism is growing due to a strong deal pipeline and recent IPO performance, with companies considering listings to streamline operations. At the same time, delistings, which are driven by strategic takeovers and low valuations, increased in 2024, reducing the number of listed companies in Germany to around 400. The future trend of IPOs and delistings will depend on economic and geopolitical factors and capital market attractiveness.

Following a period of economic and political uncertainty, a cautious optimism is emerging among German dealmakers. While challenges remain, including negative GDP growth and high energy prices, a more stable economic outlook and a clearer political landscape are creating a more favourable environment for M&A activity in general. Lower interest rates and higher stock valuations will help to bridge the gap between buyers’ bids and sellers’ expectations. The reduced cost of acquisition financing will further entice more deals from private equity.

At the same time, trends such as digitalisation, AI, and the transition of established industries and business models remain the main drivers for transactions across all sectors, with many companies realigning their business models, carving out profitable business units, and acquiring new technologies to strengthen their market share. In particular, the German automotive industry is impacted by transformation pressures, facing additional pressure due to weakened demand, a sluggish shift to electromobility, and competition from China.

Amid rising export tariffs, German companies are seeking to bolster their US presence, with transatlantic takeovers being a key strategy. The US is viewed as an attractive M&A market, although companies are often pricier (but more profitable) than European ones.

The growing scope of regulatory requirements is anticipated to prolong the transaction process.