Private Equity 2025 Comparisons

The recovery in private equity activity observed in 2024 has gained further momentum in 2025. Aggregate deal volume and value in Q1 2025 increased substantially compared to Q1 2024, driven by improved macroeconomic conditions. Declining inflation and successive interest rate cuts have created more favourable conditions for leveraged transactions. In particular, the mid-cap segment has regained momentum, accounting for the majority of new transactions, benefitting from its relatively lower risk profile, better financing access, and reasonable valuation levels.

Despite the resurgence in activity, valuation discrepancies remain a prominent challenge, particularly in high-growth sectors like tech and AI. Buyers are increasingly relying on structures such as earn-outs, staged acquisitions, and minority stakes to reconcile price expectations and mitigate downside risks. Meanwhile, exit activity has accelerated, enabling general partners (GPs) to return capital to liquidity-constrained limited partners. However, public capital markets remain only selectively open for IPOs, prompting a continued reliance on sponsor-to-sponsor transactions, secondary buyouts and partial exits.

Fundraising conditions remain demanding, with limited partners requiring more differentiated strategies, operational value creation and ESG alignment. As a result, only sponsors with strong track records or thematic expertise are securing commitments, pushing general partners to adopt new structures like semi-liquid funds or co-investment platforms.

In 2025, the most active sectors in the German private equity market include: Healthcare and MedTech, industrial technology and automation, AI and data infrastructure, as well as energy transition strategies.

Geopolitical instability, including the war in Ukraine, ongoing tensions in the Middle East, and deteriorating trade relations with China and the United States, have contributed to market volatility and heightened risk awareness. Although these challenges have not derailed deal activity, they have led to increased focus on operational resilience, more stringent due diligence, and higher premiums on “safe” domestic targets with lower geopolitical exposure.

Of particular concern in 2025 are escalating trade tensions. The United States has signalled its intention to impose high double-digit tariffs on countries that do not enter into bilateral “sectoral” trade agreements with the United States. Negotiations are currently underway with the EU in an effort to maintain 10% tariffs on most goods. While these talks continue, uncertainty regarding the outcomes of the tariffs—particularly in crucial export sectors like steel, aluminium, and automotive parts—is already noticeably affecting corporate strategies. German industrial players, including Mercedes-Benz or Salzgitter are facing margin pressures as a result of existing tariffs and are actively reassessing supply chain configurations.

This uncertainty is already slowing M&A processes: Due diligence periods are lengthening, valuation models are increasingly incorporating tariff risks, exit timelines are being extended, and overall processes are being delayed. However, upside potential can also be created for agile investors, being able to capitalise on market dislocations and mispriced assets.

Other macro-economic trends, such as receding inflation, ECB rate cuts, and stabilised cost of capital, have made leveraged finance more accessible. However, sponsors remain selective. Private credit continues its recent success, especially in transactions under EUR250 million. Sponsors prioritise high-quality assets with clear EBITDA pathways, strong governance and limited regulatory friction.

In summary, macroeconomic normalisation, improved financing conditions and selective sectoral growth are underpinning Germany’s private equity activity in 2025. Yet, geopolitical fragility, the threat of tariffs and world trading uncertainties predetermine how and where deals get done.

Foreign Direct Investment Reform and Envisaged Investment Screening Act

Germany’s Foreign Direct Investment (FDI) reforms in 2020 and 2021 have significantly impacted private equity transactions and continue to do so, particularly in sectors critical to national security, such as information and communication technology, healthcare, biotechnology, energy, and high-tech industries like aerospace and semiconductors. Both the German Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie – BMWE) and the European Commission are working toward further tightening and harmonisation of these rules.

In April 2025, the European Parliament adopted a revised EU FDI Screening Regulation, mandating coordinated screening practices across Member States and expanding the scope to include greenfield investments, advanced technologies (eg, AI, quantum, semiconductors), and critical infrastructure. The regulation also strengthens the European Commission’s ability to intervene in or block transactions that pose systemic risks to the EU’s strategic autonomy.

To that end, the German government is planning an amended Foreign Trade and Payments Act (Außenwirtschaftsgesetz), which is expected to consolidate existing FDI screening rules and formalise review processes. A draft bill is expected in the near future. Once in force, it may extend sectoral coverage and will refocus intervention thresholds. Regulatory clearance will therefore remain a key element of the M&A timeline.

Modernisation of German Partnership Law (MoPeG)

On 1 January 2024, the Act to Modernise the Law on Partnerships (Personengesellschaftsrechtsmodernisierungsgesetz or MoPeG) came into effect, introducing registration obligations for civil law partnerships (Gesellschaften bürgerlichen Rechts, or GbRs) at the new Partnership Register (Gesellschaftsregister), particularly where they hold real estate or shares in limited liability companies (GmbHs).

This change may have practical implications in cases where GbRs appear in holding structures, family-owned entities, or acquisition targets. It may also affect legacy arrangements where real estate or shareholdings are held via GbRs. As a result, GPs, fund administrators and advisors should be aware of the new formalisation and compliance requirements, particularly in the context of due diligence, transparency and legal structuring.

EU Foreign Subsidies Regulation (FSR)

The EU Foreign Subsidies Regulation (FSR), in force since mid-2023, adds scrutiny to private equity transactions involving foreign subsidies. For private equity investors, the FSR applies where a transaction qualifies as a “concentration” and where the relevant parties have received substantial non-EU state aid (defined by financial thresholds). As of 2025, the FSR has become a material consideration in cross-border deal planning. In June 2024, the European Commission initiated its first in-depth investigation under the FSR – scrutinising the proposed acquisition of PPF Telecom Group by Emirates Telecommunications Group. The case signals growing regulatory activism and highlights the increasing compliance burden for foreign-backed acquirers. PE sponsors must now conduct early-stage FSR analyses to avoid delays or challenges.

ESG, Sustainability and Supply Chain Compliance

Environmental, social, and governance (ESG) regulation continues to reshape private equity strategy and transaction execution in Europe. The EU Corporate Sustainability Reporting Directive (CSRD) entered into force in early 2025, requiring large companies and in-scope portfolio firms to disclose detailed non-financial information, including climate-related risks, human rights compliance, and governance frameworks.

In parallel, the Corporate Sustainability Due Diligence Directive (CSDDD), formally adopted in 2025, is introducing mandatory human rights and environmental due diligence obligations across the value chain. This is further compounded by evolving national rules on supply chain transparency, labour standards, and co-determination rights, particularly in Germany.

For both GPs and their portfolio companies, the compliance burden is rising. ESG metrics are now increasingly embedded in investment decisions, governance frameworks, transaction documentation, and debt covenants. LPs are also demanding robust ESG integration at the fund level, which is accelerating the institutionalisation of sustainability across the private equity lifecycle.

In Germany, private equity transactions fall under the purview of multiple regulatory bodies. The most relevant authorities are:

• the German Federal Cartel Office (Bundeskartellamt) and the European Commission – responsible for merger control under German and EU competition law;
• the Federal Ministry for Economic Affairs and Energy (BMWE) – which oversees foreign direct investment (FDI) screening and economic security;
• the Federal Financial Supervisory Authority (BaFin) – which regulates financial services providers, fund managers, and capital market participants.

Each authority plays a distinct role, and their oversight can overlap depending on transaction size, target sector, and investor origin.

Merger Control

Private equity deals are subject to merger control under the German Act against Restraints of Competition (GWB) and, where applicable, the EU Merger Regulation. Transactions exceeding statutory thresholds must be notified to the Bundeskartellamt or the European Commission. The thresholds consider the worldwide and domestic turnover of the buyer and target (eg, EUR500/EUR50 million/EUR17.5 million under German law).

The Bundeskartellamt clears most transactions in Phase I without conditions, but complex deals, particularly in consolidated industries or where vertical integration poses risks, may trigger Phase II reviews. Strategic exit planning must account for potential clearance delays or remedies.

Foreign Direct Investment (FDI) Screening

Recent legislative changes in Germany (see above) have tightened FDI screening, expanding the number of sectors covered and lowering filing thresholds. The screening process differentiates between sector-specific reviews for traditionally sensitive areas like military, defence, and IT security, and cross-sectoral reviews for critical infrastructure, healthcare, biotech, AI, and other industries. The FDI rules apply more rigorously to non-EU/EFTA investors and are particularly stringent for investors from countries such as China, Russia or the Middle East. The BMWE tends to scrutinise investments from these regions more critically. Although the total number of cases reviewed by the BMWE has slightly decreased since 2022, the overall level of scrutiny remains high, particularly for investors from the regions mentioned above. In-depth reviews have become less frequent; however, the political visibility of transactions can significantly influence outcomes.

EU Foreign Subsidies Regulation (FSR)

Since July 2023, the EU FSR has introduced a new layer of regulatory oversight for transactions involving non-EU financial support. A notification is required where:

• the target or merging parties have a combined EU turnover of EUR500 million or more; and
• they received more than EUR50 million in non-EU financial contributions in the previous three years.

This regulation is increasingly treated as a closing condition, alongside merger control and FDI approval. Early enforcement trends (eg, Emirates Telecom’s acquisition of PPF Telecom) underscore the FSR’s rising relevance in private equity transactions.

Anti-Bribery, Sanctions, and ESG Compliance

Germany has sharpened enforcement around ESG, sanctions, and anti-bribery compliance, particularly in light of the Corporate Sustainability Reporting Directive (CSRD) and growing EU sanctions regimes related to Russia, Belarus, Iran and China. Private equity funds are increasingly required to conduct enhanced due diligence on supply chains, data governance, and labour practices. Many funds have embedded ESG KPIs into shareholder agreements and portfolio monitoring. Anti-bribery enforcement remains aligned with OECD and EU standards, but enforcement risks are rising for companies operating in high-risk jurisdictions.

Legal due diligence in German private equity transactions follows a comprehensive and risk-focused issue-spotting approach. Most deals rely on a structured virtual data room (VDR), with findings delivered through focused red-flag reports, tailored to the deal’s complexity and sector exposure. This report typically also provides the client with recommendations on how to mitigate the risks arising from the transaction and, where possible, comments on the commercial implications of these risks.

Beyond deal-specific commercial matters, due diligence routinely targets key legal areas such as corporate law, commercial contracts, finance, employment, IP, IT and data protection, real estate, compliance, insurance, litigation and regulatory matters. In particular, German FDI screening and merger control thresholds are reviewed early, especially in sectors like healthcare, defence, AI, and digital infrastructure. ESG-related legal due diligence has become a standard component, driven by the CSRD, CSDDD, and Germany’s Supply Chain Act. Legal teams assess not only the existence of ESG policies but also their operational implementation and legal robustness, especially for international targets.

Another critical focus is data governance and IP ownership. Private equity investors in AI-, software-, and tech-heavy targets pay close attention to the provenance of training data, open-source software usage, and compliance with GDPR in light of the upcoming EU AI Act. Algorithm transparency, model explainability, and liability allocation are emerging as headline issues. Employment law diligence addresses key personnel contracts, incentive schemes, and the presence of works councils (Betriebsräte), which may introduce specific co-determination rights post-transaction.

In 2025, AI-based legal tech tools are increasingly used to automate document review, track versions, and flag standard clauses – particularly useful in high-volume, time-sensitive auction processes.

Vendor due diligence remains common in competitive auction sales. Rather than providing a full legal due diligence report in the traditional sense, sellers often offer a legal fact book: a concise summary of key corporate and legal facts, prepared without legal opinions. It allows for identifying and addressing potentially deal-critical issues early, helping to streamline and smooth the legal and commercial negotiation process. These legal fact books are generally made available on a non-reliance basis, meaning prospective buyers must sign a release or waiver letter in favour of the sell-side legal advisers before being granted access. Even where a vendor due diligence report or legal fact book is provided, buyers will typically conduct supplementary buy-side (or “top-up”) legal due diligence to verify key findings and ensure alignment with their internal risk thresholds.

In Germany, private equity funds typically execute acquisitions through privately negotiated share purchase agreements, primarily aiming to acquire majority or full ownership stakes in the target company. This approach, predominantly structured as a “share deal,” is the most common method and allows for flexibility in tailoring transaction terms directly between the buyer and seller. While public tender offers can occur for publicly listed targets, they are relatively rare in the context of private equity. Asset deals, where specific assets and liabilities are acquired instead of shares, are less frequent due to their higher administrative complexity (eg, consent requirements, employee transfers). They are generally reserved for special situations such as corporate carve-outs or distressed M&A scenarios, where a share deal may not be feasible or desirable.

Both one-on-one negotiations and structured auction processes are typical in the German market. As a general pattern, larger or highly sought-after targets are more likely to be sold through a competitive auction. In bilateral deals, private equity investors often have greater scope to negotiate transaction terms, including warranties, indemnities, and pricing mechanisms. This allows for a more customised allocation of legal and commercial risks. By contrast, auction sales tend to be more rigid. The seller typically imposes a pre-drafted, standardised set of terms via a sell-side SPA (with limited flexibility for amendment). Timelines are tighter, competition is stronger, and bidders are generally expected to conform to the seller’s process, leaving less room for individual due diligence or customised structuring. However, auctions often yield higher valuations for sellers, making them an attractive route for exits.

Private equity-backed acquisitions in Germany are typically structured through a dedicated special purpose vehicle (SPV), commonly referred to as “BidCo.” This entity is incorporated specifically for the purpose of executing the transaction and serves as the formal buyer under the acquisition documentation. The BidCo is usually controlled by the private equity fund or its affiliated investment entities and is capitalised through a combination of equity and debt, depending on the financing structure.

The private equity fund itself does not normally appear as a direct party to the share or asset purchase agreement. However, it often plays a decisive role behind the scenes in negotiating key terms and shaping the transaction structure. In certain cases, particularly in competitive auctions or when additional comfort is required, fund entities may be asked to provide guarantee arrangements or other forms of investor support to backstop the BidCo’s obligations.

Overall, the fund remains strategically involved throughout the process but generally avoids taking on direct contractual liability in the transaction documents, maintaining a layer of separation through the SPV structure.

Private equity transactions in Germany are typically financed through a combination of equity and debt, with the capital structure tailored to the size, complexity, and risk profile of the deal. The sponsor generally provides the equity portion via a dedicated acquisition vehicle (BidCo), and it is standard practice for the seller to receive an equity commitment letter from the fund or a controlling investment entity. This document contractually secures the availability of equity capital and is a critical component in establishing funding certainty at signing, particularly in competitive auction processes. Due to German notarisation requirements, where a limited liability company is the target, equity commitment letters are typically notarised together with the main transaction documentation.

For the debt-financed portion, the approach depends on market conditions and deal dynamics. In larger or time-sensitive transactions, debt commitment letters from financing banks or private credit funds are commonly provided at signing and attached to the SPAs. Term sheets and limited conditionality typically accompany these to assure the seller that the full purchase price will be available at closing. In situations where formal commitments have not been established yet, sellers may request alternative forms of comfort, such as highly confident letters, financing process updates, or even break-up fees tied to financing failure.

Over the years, tighter monetary policies and elevated interest rates have made leveraged finance more selective and expensive, especially for large-cap transactions. Consequently, there has been a noticeable shift towards securing more solid financing commitments early in the deal process. Additionally, private equity sponsors have increasingly turned to private credit funds, which offer more flexible structures, faster execution, and, in some cases, greater certainty of funding.

Club deals, or multi-sponsor acquisitions, are uncommon in the German mid-market, but occasionally occur in large-cap or sector-specific transactions. More common are LP co-investments, where limited partners of the lead fund invest passively alongside the GP.

• LP co-investors generally hold non-controlling stakes, governed by co-investment agreements that provide for exit mechanics and governance rights.
• Strategic co-investors, such as family offices or sovereign wealth funds, occasionally participate where sector expertise or long-term alignment is desirable.
• Mixed consortia of financial and corporate investors are rare but may be employed in infrastructure or energy transition deals.

In German private equity transactions, the predominant pricing mechanisms remain locked-box and closing accounts. Locked-box structures are typically favoured in auction processes and by private equity sellers due to the price certainty they offer, while closing accounts are more prevalent in bilateral or complex deals, as they allow for post-closing adjustments.

Earn-outs, deferred payments, and equity rollovers are frequently employed to bridge valuation gaps, particularly in founder-led or growth-stage transactions. Equity rollovers are especially common where existing management retains an equity stake to ensure post-closing alignment.

Private equity sellers typically prefer locked-box pricing mechanisms and rely extensively on warranty and indemnity (W&I) insurance to limit post-completion liability. Conversely, buyers (notably private equity funds) often advocate for completion accounts to ensure financial precision. Compared to strategic corporate acquirers, private equity investors tend to adopt more standardised and risk-mitigated approaches to pricing and liability allocation.

In transactions that use a locked-box mechanism, it is standard practice for the equity consideration to accumulate a fixed daily amount (known as a “ticker”) from the locked-box date until the closing. This arrangement compensates the seller for the buyer’s delayed access to the target’s economic benefits. This “interest” is typically structured as a predetermined daily cash amount, often based on the target’s cash flow projections rather than prevailing debt market rates.

Should any value leakage (ie, unauthorised transfers to the seller or its affiliates) occur during the locked-box period, a reverse interest or penalty rate is commonly applied to the leaked amount. These measures are designed to preserve economic equivalence and disincentivise unauthorised value extraction.

German private equity transaction documents frequently incorporate expert determination clauses to resolve post-closing disputes arising under completion accounts or earn-out provisions (for instance, in relation to net debt or working capital calculations). The appointed expert is typically a neutral accounting professional whose determination is binding, save for manifest error.

In contrast, locked-box structures typically do not require post-closing financial adjustments due to their fixed-price nature. Nevertheless, disputes may still arise in connection with alleged leakage or breaches of locked-box protections, and such claims are typically resolved through general dispute resolution clauses, such as arbitration or litigation, rather than expert determination. The chosen pricing model often dictates the dispute resolution framework.

German private equity transactions are generally characterised by limited conditionality. Conditions precedent typically relate to essential regulatory approvals, particularly merger control and FDI clearance. Financing conditions are highly atypical, particularly in competitive auction settings, where sellers expect “certain funds” commitments (ie, fully committed financing at signing).

Material adverse change (MAC) clauses may occasionally be negotiated but are rarely invoked and often narrowly defined or resisted altogether. Third-party consents, such as from key customers, landlords, or licensors, may be included if deal-critical, although most buyers attempt to address these either pre-signing or via post-closing covenants. Shareholder approvals are generally not required unless a co-investor or existing stakeholder holds consent or blocking rights. Overall, the market standard favours high deal certainty and minimal execution risk.

Private equity buyers in Germany rarely accept unconditional “hell or high water” undertakings in respect of regulatory approvals due to the potential exposure such commitments entail. More commonly, they agree to use “reasonable best efforts”, while explicitly excluding divestiture obligations relating to other portfolio companies.

Exceptions may arise where regulatory risk is deemed low or competitive dynamics require more buyer flexibility. Even in such scenarios, break fees tied to failure to obtain regulatory clearance are usually disfavoured. A distinction is typically made between merger control (where buyers may be more amenable, depending on the antitrust assessment) and foreign investment screening, which is generally more politically sensitive and can be less predictable.

Break fees in favour of the seller remain relatively uncommon in German private equity transactions and are not considered part of standard market practice. Where they are agreed, such provisions typically arise in cross-border or highly competitive transactions and are triggered by buyer failures (for example, to secure financing or regulatory clearances within stipulated timeframes). Agreed fee levels generally range from 1–5% of the purchase price. Depending on the type of transaction, certain break-up fee arrangements outside of the SPA need to be notarised.

Acquisition agreements in German private equity transactions typically provide both parties with termination rights if closing conditions, notably regulatory clearances, are not fulfilled by an agreed long-stop date. Additional termination triggers may include breach of fundamental warranties, failure to deliver closing deliverables, or, less frequently, the occurrence of a contractually defined material adverse change.

Long-stop periods mostly range from three to six months post-signing, depending on the deal’s complexity and regulatory timeline. In auction or time-sensitive transactions, shorter long-stop periods may apply, while longer periods are often negotiated for transactions subject to FDI clearance or multijurisdictional merger control. Extensions are sometimes built in to accommodate pending approvals.

Risk allocation in private equity transactions diverges significantly from corporate-to-corporate M&A. Private equity sellers seek a “clean exit,” typically achieved through tight contractual limitations on liability, the use of W&I insurance, and limited warranties. In contrast, corporate sellers may accept broader warranties and greater residual exposure.

On the buy-side, private equity purchasers adopt a risk-sensitive and highly structured approach, including detailed due diligence, bespoke indemnity provisions, and safeguards around financing. In secondary buyouts, private equity acquirers often accept more limited warranties than in acquisitions from corporate vendors. Overall, private equity buyers and sellers alike prioritise contractual certainty and well-defined liability regimes.

In German private equity exits, the private equity seller typically provides only a limited set of fundamental warranties, such as title to shares, authority, and capacity, and business warranties (eg relating to operations, compliance, IP, or material contracts) covered by W&I insurance. Tax indemnities are customarily provided either directly by the seller or increasingly on a purely synthetic basis through insurance, albeit with a narrow scope and standard exclusions.

Liability for business warranties is usually capped at 10–30% of the purchase price, with survival periods of 12–24 months.

Tax indemnities, if granted, may extend to 100% of the purchase price with longer limitation periods, frequently up to seven years.

Disclosure of the data room against warranties is standard and typically allowed. W&I insurance policies generally adopt the same disclosure framework and carve out known issues, which must be separately negotiated or excluded. Overall, limitations on warranty liability in German private equity deals are defined by quantum caps, time limits, knowledge qualifiers, and the exclusion of known or insured risks, with the buyer assuming residual commercial risk post-closing.

Additional contractual protections include materiality thresholds, knowledge qualifiers, as well as negotiated “sandbagging” clauses that limit claims for issues known to the buyer before closing.

W&I insurance has become quite prevalent in German M&A transactions and is particularly dominant in sell-side private equity deals. This insurance is generally utilised to cover both fundamental and business warranties, protecting buyers while minimising significant liability for the seller. Furthermore, W&I insurance can and frequently does encompass tax issues (including tax indemnities), especially in transactions where the parties aim to circumvent lengthy negotiations. Enhancements favouring the purchaser are largely standard in contemporary W&I-insured transactions. Additionally, purely synthetic tax indemnities have seen increased usage in recent times. It is recognised in the market that purely synthetic catalogues of representations and warranties may also be provided by W&I insurers under specific conditions; however, this concept remains relatively novel in the German market.

Escrow accounts or retention mechanisms have been relatively rare in German private equity transactions and the broader German M&A landscape in recent years. Nevertheless, when utilised, they are generally employed to secure warranties or particular indemnities, offering an extra layer of protection for the buyer. In these instances, the escrow amount is typically a minor percentage of the purchase price and is retained in escrow for a limited duration, often corresponding with the warranty periods.

Litigation in connection with German private equity transactions is relatively rare, owing to comprehensive due diligence, arbitration clauses, and widespread use of W&I insurance. However, disputes may still arise, most commonly in relation to earn-outs, purchase price adjustments, and warranty breaches – particularly where undisclosed liabilities or financial underperformance are alleged.

Tax indemnities and indemnities for specific known risks may also become contentious. Increased deal complexity and heightened valuation pressures, particularly under 2024–2025 market conditions, may lead to a moderate uptick in disputes over consideration mechanisms in the future.

Public-to-private (P2P) transactions involving private equity bidders are increasingly observed in Germany, albeit still representing a modest portion of the overall M&A activity. Recent examples include the takeovers of Encavis, Compu Group, Software AG, OHB, Covestro, and Synlab, as well as the ongoing acquisition efforts concerning Gerresheimer. Notably, in March 2025, a consortium led by KKR and Warburg Pincus submitted a non-binding takeover offer for Gerresheimer, valuing the pharmaceutical packaging and medical technology company at approximately EUR3.1 billion. Following the collapse of this bid, market speculation has arisen that KPS Capital Partners may step in to pursue a joint offer with Warburg Pincus. This development illustrates a renewed appetite for P2P transactions in Germany, particularly in capital-intensive or specialised sectors, despite heightened regulatory scrutiny in prior years.

Under the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG), material shareholding thresholds trigger mandatory disclosure obligations when a shareholder acquires or disposes of voting rights in a listed company. The relevant thresholds are 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50%, and 75%. Any crossing of these thresholds must be disclosed without undue delay, and no later than four trading days, to both the target company and the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) without undue delay, within four trading days at the latest.

For private equity-backed bidders preparing a tender offer, strict compliance with these disclosure requirements is essential. Voting rights aggregation includes not only directly held shares but also shares held via subsidiaries, controlled undertakings, or persons acting in concert. Notably, the “acting in concert” doctrine may trigger disclosure even where individual shareholdings remain below the threshold, making accurate coordination and attribution critical, especially in syndicate or co-investment structures.

Non-compliance may result in substantial fines and temporary suspension of voting rights, potentially undermining transaction certainty.

Under the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz – WpÜG), any party that directly or indirectly acquires 30% or more of the voting rights in a listed German company is obliged to launch a mandatory public offer to all remaining shareholders. This mechanism is intended to protect minority shareholders by providing them with an opportunity to sell their shares in the event of a change of control.

For private equity bidders, the 30% threshold calculation includes not only direct holdings but also attributed voting rights from affiliated entities, co-investing funds, or commonly controlled portfolio companies. Consequently, careful structuring and legal analysis are required to prevent inadvertent triggering of the mandatory offer requirement. Strategic coordination between parallel investment vehicles within a private equity group is particularly sensitive in this context.

In German public tender offers, cash is the predominant form of consideration – particularly in transactions involving private equity sponsors – due to its simplicity, speed, and appeal to shareholders, as well as its alignment with regulatory requirements. Share-for-share exchanges are rare and typically confined to strategic or corporate transactions.

German takeover law imposes strict minimum price rules under the WpÜG. The offer price must equal or exceed:

• the highest price paid by the bidder (or any person acting in concert) for shares in the target within the six months preceding the offer announcement; and
• the three-month volume-weighted average stock exchange price prior to announcement.

Should a bidder opt to include shares or other non-cash instruments as consideration, a cash alternative must be provided to ensure equal treatment. These rules serve to safeguard minority shareholder interests and prevent coercive pricing strategies. For private equity acquirers, careful monitoring of pre-announcement acquisitions is crucial, as even small share purchases at a premium can set the floor for the final offer price.

In Germany, private equity-backed takeover offers can include certain conditions, but these are subject to strict legal limitations under the WPÜG. The law requires that any conditions attached to a public tender offer must be objective, clearly defined, and not subject solely to the bidder’s discretion. The conditions must be capable of being verified and fulfilled (or not fulfilled) based on observable, independent events.

One important restriction is that a tender offer cannot be conditional on the bidder obtaining financing. German law mandates that a bidder must have secured firm and unconditional financing before the offer is launched. Typically, this involves presenting a written confirmation from a financing bank or institution, ensuring that the bidder is in a position to fully settle the offer consideration if the transaction succeeds. This rule aims to provide transaction security and protect minority shareholders.

Permissible conditions typically include:

• regulatory approvals (eg, antitrust or FDI clearance);
• minimum acceptance thresholds (commonly set at 50% or 75%);
• delisting or squeeze-out conditions; and
• Material Adverse Change (MAC) clauses, provided they are narrowly drafted and objectively measurable.

Despite the statutory emphasis on board neutrality and shareholder autonomy, certain deal protection mechanisms are permissible in friendly transactions, including:

• break fees, if proportionate (generally 1–3% of deal value);
• matching rights, allowing the bidder to match superior competing offers;
• non-solicitation clauses, provided they do not preclude the target board from responding to unsolicited superior offers;
• due diligence rights, particularly in advanced or exclusive negotiations.

However, certain US-style deal protections, such as force-the-vote provisions, are not applicable in the German framework. In German public tender offers, shareholders individually decide whether to tender their shares; there is no binding shareholder vote on the offer itself.

In conclusion, while private equity-backed bidders can structure conditional offers and seek a degree of deal protection in Germany, they must do so within a legal framework that strictly limits conditionality and prioritises deal certainty and equal treatment of shareholders.

If a private equity bidder fails to secure complete ownership of a target, it may still pursue additional governance rights to assert control over the company. These rights can encompass board representation, veto powers on critical decisions (including alterations in business strategy, significant capital investments, or mergers and acquisitions), and influence over the selection of senior management. Typically, these rights are negotiated within a shareholders’ agreement with other principal shareholders or incorporated into the company’s articles of association.

In order to facilitate a debt push-down into the target after a successful bid, a minimum of 75% of the voting shares is necessary, as this threshold enables the bidder to pass specific shareholder resolutions essential for capital restructuring, such as the endorsement of a domination agreement or profit transfer agreement, which are frequently employed to support a debt push-down by allowing the target’s cash flows to cover the acquisition debt.

Under German law, squeeze-out mechanisms are accessible for bidders who attain substantial ownership percentages but do not reach 100%. If the bidder achieves 95% ownership of the target’s share capital, it can commence a squeeze-out in accordance with the German stock corporation law, mandating the remaining minority shareholders to divest their shares at a fair cash compensation. If a merger follows this, 90% ownership may suffice.

It has become increasingly common in German takeovers (particularly those backed by private equity sponsors) for bidders to secure irrevocable undertakings from key shareholders to tender their shares. These undertakings are typically concluded before the public announcement and are designed to increase deal certainty and achieve acceptance thresholds.

Commitments of this nature are typically binding and cannot be withdrawn, even when there are better offers available. However, where institutional or fiduciary shareholders are involved, a limited “fiduciary out” clause may be negotiated, allowing withdrawal in the event of a superior offer that must be accepted to comply with fiduciary duties.

These agreements typically restrict transfers, prohibit support for competing offers, and may include standstill provisions. Although enforceable under German law, they must be structured to comply with takeover regulations, especially those regarding equal treatment and transparency.

Equity incentivisation of the management team is a well-established feature of private equity transactions in Germany. Sponsors routinely implement management equity participation programmes (MEPs) to align key executives’ interests with those of the investor and to drive long-term value creation throughout the investment horizon.

Management equity typically ranges from 3% to 20% of the fully diluted share capital, depending on factors such as company size, management’s track record and negotiating leverage, and the extent of reinvestment by founders or sellers. Equity is often structured through a mix of direct shareholdings, “sweet equity”, and virtual or phantom instruments. These arrangements are generally subject to vesting provisions, good leaver/bad leaver mechanics, and liquidity tied to exit events. German tax, employment, regulatory and corporate law considerations significantly influence the structuring of such programmes.

Although virtual participation models and option plans are available in the German market, the most common and tax-efficient structure continues to be indirect share ownership through a management pooling vehicle, usually organised as a limited partnership (Kommanditgesellschaft – KG). The management acquires limited partner interests, whereas the general partner and any warehousing entity are controlled by the sponsor, allowing the private equity fund to centralise governance.

Incentive structures commonly involve either pure “sweet equity” – granted on more favourable terms to management to deliver enhanced upside – or a combination of “sweet equity” and the “institutional strip”, representing the investor’s senior capital contribution, often with preferred return rights and downside protection.

Managers generally hold subordinated equity (ordinary shares, growth shares, or separate profit-participating classes) that participate only in value above certain thresholds. In contrast, the sponsor typically invests (additionally) through preferred shares or shareholder loans, ranking senior in the capital waterfall. Careful tax planning is essential to ensure returns are taxed as capital gains rather than employment income, particularly given the evolving scrutiny from tax authorities.

Vesting provisions are standard in German private equity-backed management equity schemes, designed to promote long-term alignment and retention. Time-based vesting over a three-to-five-year period is most common, frequently including an initial cliff followed by linear vesting. Alternatively, vesting may be performance-based or tied to exit events.

Leaver provisions distinguish between:

• good leavers: typically departing due to death, disability, retirement, or termination without cause. Good leavers may retain vested equity and are often entitled to fair market value for unvested portions;
• bad leavers: those terminated for cause or who resign voluntarily without good reason. Bad leavers generally forfeit unvested shares and may be forced to transfer vested shares at a discount or nominal value.

Until early 2025, German case law created by the Federal Labour Court (Bundesarbeitsgericht) permitted bad leaver provisions in virtual option schemes. However, in a pivotal decision issued in March 2025, the court held that contractual clauses mandating forfeiture of virtual options upon voluntary resignation are invalid for being unreasonably discriminatory under employment law. This ruling calls for more nuanced drafting of virtual schemes to withstand judicial scrutiny.

Leaver regimes are typically embedded in the shareholders’ agreement and must be carefully structured to remain enforceable under German employment and contract law.

It is customary for management shareholders in private equity transactions to agree to restrictive covenants such as non-compete, non-solicitation, and non-disparagement undertakings. These covenants are designed to protect the value of the investment and prevent managers from undermining the business post-departure or during a competitive process.

These covenants are typically reflected in both the employment contract and the shareholders’ agreement. The employment contract outlines restrictions during the period of employment and for a limited time afterwards, while the shareholders’ agreement may impose wider constraints related to the ownership and sale of equity.

German law imposes specific limits on enforceability, especially for post-termination non-competes:

• post-employment non-compete clauses are enforceable only if they are appropriately limited (maximum two years) and accompanied by financial compensation of at least 50% of total remuneration;
• non-compete clauses in shareholder agreements, especially for non-employee managers, may be broader and more flexible, but they must still be reasonable in scope, duration (usually max. two years), and geographic reach to be enforceable;
• non-solicitation and non-disparagement clauses are generally enforceable if drafted and proportionate, particularly when tied to the protection of confidential information or legitimate business interests.

In practice, restrictive covenants are a standard part of the overall management equity and employment package, but they must be carefully tailored to avoid invalidation under German labour or competition law.

Minority protections for management shareholders are typically contractual and narrowly circumscribed. These may include limited veto rights over fundamental matters such as amendments to the articles of association, capital restructurings, or changes to the business purpose. However, broader governance rights, such as board representation or consent rights over exits, are rarely granted unless management holds a substantial stake or has significant negotiation leverage.

Anti-dilution protections are not standard, but lately often granted in cases of significant reinvestment. Generally, the private equity sponsor retains full discretion over the exit process, with management required to cooperate and roll over equity when mandated under the shareholders’ agreement.

Private equity funds typically exert significant control over their portfolio companies through a combination of governance, contractual rights, and information asymmetry.

Board Appointment Rights

Private equity funds typically secure the right to appoint one or more members to the portfolio company’s board of directors or supervisory board, depending on the jurisdiction and company structure. This enables the fund to actively influence the company’s strategic direction and oversee key operational decisions.

Reserved Matters Requiring Shareholder Approval

Private equity investors generally negotiate a wide range of reserved matters that require their prior consent before the company can proceed. These typically cover fundamental corporate actions such as changes to the capital structure, including:

• share issuances, dividends, or buybacks;
• major transactions like acquisitions, disposals, or significant investments;
• the approval of annual budgets and business plans;
• material financing arrangements; and
• decisions relating to the appointment or dismissal of key executives.

The scope of these reserved matters is intentionally broad to ensure that the private equity fund retains oversight and control over any strategic decisions that could materially affect the value of its investment.

Information Rights

Extensive information rights are standard, granting private equity investors access to regular, detailed financial and operational reports. Typically, these include quarterly and annual financial statements, management accounts, and operational KPIs. Additionally, private equity investors often have the right to request ad hoc information to closely monitor the company’s performance and respond proactively to emerging issues.

In Germany, where the portfolio company is commonly structured as a limited liability company (GmbH), the principle of separate legal personality generally protects private equity funds from direct liability for the company’s actions beyond their capital contribution.

However, liability risks may arise if the private equity fund is deemed to exercise de facto management over the GmbH. This situation can occur if the fund is deeply involved in the day-to-day operations or strategic decision-making of the company, effectively acting as a manager rather than merely as a shareholder. Under such circumstances, the fund could be held liable for certain management actions or obligations, provided specific conditions are met. In rare cases, German courts (notably the Bundesgerichtshof) have imposed liability where sponsors caused unlawful payments post-insolvency or were involved in fraudulent asset stripping. Liability may also arise where there is improper commingling of shareholder and company assets or unjustified withdrawals of value that threaten the company’s solvency.

Additional exceptions to the principle of separate legal personality, although typically less relevant in private equity contexts, include situations involving the mixing of shareholder and company assets or the withdrawal of assets without adequate compensation that threatens the company’s survival.

In Germany, the most common form of private equity exit remains private sales to other private equity investors (secondary buyouts) or strategic corporate buyers. While exits via IPOs or through corporate restructurings, such as mergers or spin-offs, do occur, they are comparatively rare due to market volatility and regulatory complexity. Notably, the IPO market has been struggling recently, leading to numerous cancellations or postponements of planned listings.

Dual-track exit strategies, where a company is simultaneously prepared for an IPO and a private sale, are occasionally used in large-cap deals. This approach helps maximise value by maintaining flexibility and creating competitive pressure between bidders and the public market. However, outside of these large-cap situations, as seen in the case of Techem, “dual-track” processes are quite rare in Germany.

“Triple-track” exits, which add a recapitalisation process alongside an IPO and a sale process, are even less common but may be deployed in complex exits or where valuation uncertainty persists.

Private equity sellers in Germany do not typically roll over or reinvest upon exit. Instead, they often seek a complete exit to return capital to their investors. However, in some cases, especially in secondary buyouts, there may be a partial reinvestment or rollover reflecting strategic alignment or continuity incentives. This ongoing trend is expected to continue in 2025.

Drag-along and tag-along rights are standard features in German private equity shareholder agreements and play a key role in managing shareholder relations during exit scenarios.

The drag-along threshold, which allows majority shareholders to require minority shareholders to sell their shares, is typically set at around 50% of the voting rights. This ensures that a controlling shareholder can initiate a clean exit, even without unanimous consent.

Tag-along rights, on the other hand, are designed to protect minority shareholders by allowing them to participate in a sale under the same terms as the majority seller. These rights usually apply to any sale by the majority, including partial disposals, and may be structured pro rata, depending on the shareholder agreement and equity structure.

Institutional co-investors, who often hold significant stakes and possess greater negotiating leverage, frequently secure customised terms, such as modified thresholds or enhanced protections, to better reflect their investment strategies and risk preferences.

Despite a general consensus on these rights, they are seldom activated in practice. Typically, private equity sponsors work closely with other shareholders prior to a planned exit to ensure alignment and prevent the formal exercise of such rights.

IPOs remain an infrequent but strategic exit route in Germany. Transactions typically involve a lock-up period of six to twelve months to stabilise trading post-listing.

Although formal relationship agreements are rare, private equity sponsors frequently retain board seats and veto rights post-IPO, particularly where they remain significant minority shareholders. To build market credibility and demand, cornerstone or anchor investors are often secured pre-IPO. Offer structures usually include a mix of primary shares (company capital raise) and secondary shares (sponsor sell-down).

Successful IPOs require precise timing and alignment with broader capital markets. In the current environment, IPO activity remains subdued, but private equity sponsors continue to prepare companies for listings as part of a dual- or triple-track strategy where appropriate.