Germany – Dreams of spring

The German M&A market showed signs of recovery in 2024, despite challenging economic conditions. While deal volumes were down 15% from 2023, values were more resilient, dipping 2.4% in the timeframe. Overall, 18 deals surpassed the €1 billion mark, contributing to a total transaction value of €78.9 billion.

Major transactions included DSV A/S’s €14.3 billion acquisition of DB Schenker Group, ADNOC’s €16.1 billion public takeover of Covestro AG (formerly Bayer's chemicals business), and TPG’s €6.7 billion acquisition of Techem Group’s energy metering business in partnership with Singapore's sovereign wealth fund GIC. These large-scale deals highlighted the growing dynamism in high-value segments, even as smaller transactions remained subdued.

The increase in outbound deal value was driven by strong activity in the industrials sector, such as Siemens' $10 billion acquisition of US-based Altair Engineering. US targets accounted for approximately 72% of outbound deal value and were also the most targeted in terms of deal volume, representing 14% of outbound deal volume.

Strategic buyers outperformed financial investors, leveraging operational expertise to navigate market complexities. Although deal volume for financial sponsor-backed German deals dropped 13% year over year, deal values surpassed 2022 and 2023 levels, boosted by 13  €1 billion-plus transactions. A potential highlight of the year is UniCredit’s €20 billion hostile takeover of Commerzbank, which could reshape Germany’s banking sector significantly.

Sector-specific activity showed strong performances in industrials and energy, each accounting for around 20% of deal value. Industrials, technology, consumer, and healthcare sectors also saw elevated deal volumes, with software, AI, digitalisation, infrastructure, and renewable energy driving M&A dynamics. Despite ongoing challenges, the recovery in transaction values and the focus on strategic goals indicate a resilient and evolving market.

Challenges and sector-specific developments

Despite strong transaction values, Germany’s M&A market lagged global peers due to inflation, weakening consumer confidence, and rising interest rates. These factors, coupled with fears of recession, dampened dealmaking for the fourth consecutive year. The number of domestic deals fell by 13%, while inbound and outbound deals decreased by 30% and 7% respectively. Valuation multiples remained far below the peak levels of 2021 and 2022, reflecting cautious investor sentiment.

Economic pressures were evident in key industries. The automotive and mechanical engineering sectors, historically strong contributors, implemented cost-cutting measures instead of pursuing expensive acquisitions. This trend extended to the retail and automotive supply sectors, where distressed M&A, turnarounds, and restructurings presented opportunities. Strategic partnerships, such as Volkswagen’s collaboration with Rivian Automotive, offered an alternative to traditional acquisitions.

In contrast, digitalisation, renewable energy, and healthcare maintained robust M&A activity. The increasing importance of environmental, social and governance (ESG) considerations further influenced dealmaking, as companies pursued acquisitions to bolster environmental compliance, decarbonisation, and broader energy transition goals. M&A is becoming a critical tool for enhancing ESG profiles, especially for multinational corporations, PE firms, and financial institutions.

Economic and legal trends

Macroeconomic uncertainties continued to create hurdles, particularly around valuation disagreements and renegotiations of previously agreed terms. Buyers and sellers struggled to align on company valuations, often delaying or complicating deals. Moreover, a stricter regulatory environment and antitrust objections extended the time required to finalise mergers or acquisitions, adding further complexity to the market.

These regulatory trends are expected to persist, with ESG factors gaining prominence in transaction decisions. Environmental compliance, governance, and diversity are increasingly becoming integral to acquisition and divestment strategies, driving companies to acquire green technologies and competencies.

The collapse of Germany’s 'traffic light' coalition has created a degree of political uncertainty, which might prompt companies to reconsider or postpone their M&A activities until the political situation has been clarified. Although there is no complete legislative standstill, ongoing legislative initiatives have been paused and reforms, for instance in corporate and tax law that could impact M&A transactions, are likely to face delays until a new government is formed.

Outlook for 2025

Looking ahead, the German M&A market is expected to regain momentum in 2025, driven by technological and environmental imperatives. A new German government will likely prioritise the creation of more favourable conditions for both domestic and foreign investments, to reinvigorate Germany's economic landscape and cement its position as an attractive destination for investors. Stabilising market conditions are likely to revive mid-cap transactions. PE investors, holding substantial portfolios acquired over the past five to six years, are anticipated to seek exits, contributing to increased deal activity.

Digitalisation and artificial intelligence will play a more significant role in shaping M&A strategies, while strategic goals such as sustainable growth and long-term value creation will dominate corporate priorities. However, economic uncertainty and valuation disagreements are expected to remain challenges, potentially delaying some deals. Nonetheless, the market’s growing dynamism signals a more promising outlook for German M&A in the coming year.