The private equity industry is changing massively

As we all know, the indus­try has always been in a state of flux and we are curr­ently opera­ting in a diffi­cult market envi­ron­ment. Accor­ding to my obser­va­tions, some tradi­tio­nal spon­sors are curr­ently disap­pearing from the market or trans­forming into secon­dary funds due to weaker perfor­mance and failed succes­sion plan­ning. First-time teams / first-time funds still dare to enter the market from time to time, but are finding it much more diffi­cult over­all than 4 — 5 years ago. It is also appa­rent that pan-Euro­pean mid-cap funds are incre­asingly looking at invest­ment acti­vi­ties in Germany. US inves­tors are also show­ing rene­wed inte­rest in the German market in view of the current poli­ti­cal uncer­tain­ties in their home market. Larger buy-out houses have recently disco­vered the smal­ler market segment and are also pursuing buy-and-build cases with their own vehic­les. Over­all, a market conso­li­da­tion can curr­ently be obser­ved (flight to quality). 

The fund­rai­sing envi­ron­ment (espe­ci­ally for larger funds) remains diffi­cult, even if the over­all view of Germany has become more posi­tive since the Bundes­tag elec­tions. In addi­tion, from an inves­tor’s perspec­tive, the attrac­ti­ve­ness of Germany (or Europe) appears to be bene­fiting from the uncer­tainty of the US market. 

In terms of their port­fo­lios, the funds are curr­ently expe­ri­en­cing longer holding peri­ods. Fewer exits can be obser­ved on the market, also at lower returns over­all. Conti­nua­tion vehic­les conti­nue to increase as an exit channel. 

The private debt market in Germany has deve­lo­ped enorm­ously in recent years. This applies to both the number of provi­ders and the number of tran­sac­tions finan­ced. Around two dozen debt funds can now be found regu­larly in league tables in Germany, of which a handful provide finan­cing parti­cu­larly frequently. The provi­ders are often German offshoots of inter­na­tio­nally active funds with a US or UK back­ground. In terms of content, the focus is clearly on acqui­si­tion finan­cing. Debt funds now regu­larly provide more finan­cing than banks on an annual basis. Simi­lar to private equity, private debt is also sitting on a lot of dry powder, which leads to high compe­ti­tion for “good” tran­sac­tions. Due to their grea­ter flexi­bi­lity, debt funds are also more willing to look at more unusual finan­cing structures. 

The expec­ted strong M&A year in 2025 has so far failed to mate­ria­lize due to the outcome of the US elec­tions, high energy prices and the gene­ral econo­mic and regu­la­tory envi­ron­ment. Howe­ver, there are now signs of a year-end spurt. Over­all, there are fewer tran­sac­tions on the market, espe­ci­ally larger-mid-cap and large-cap tran­sac­tions. There are also fewer and fewer proprie­tary tran­sac­tions. Of course, this percep­tion should be seen in rela­tion to the very strong past M&A years, in which very high (and some­ti­mes too high) prices were paid for assets. Tran­sac­tion and trading multi­ples are slowly falling, but the still high price expec­ta­ti­ons are being met by inves­tors who are sitting on a lot of money but are acting very cautiously over­all due to the gene­ral condi­ti­ons. Busi­ness models are being inten­si­vely tested for AI substi­tu­ta­bi­lity. This also makes exits more diffi­cult, espe­ci­ally for compa­nies that were bought at too high a price in the former better market envi­ron­ment. Exits with higher multi­ples can curr­ently only be obser­ved for selec­ted assets (e.g. in the soft­ware and AI sectors). Auctions are also being held for smal­ler assets, often with a limi­ted number of bidders. Auctions take longer and are more labo­rious over­all. Only for very attrac­tive targets in selec­ted sectors can truly compe­ti­tive proces­ses be obser­ved regu­larly in the mid-cap segment. 

Dr. Tobias Fenck is a lawyer and part­ner at GÖRG in Frank­furt am Main. He specia­li­zes in private equity and mergers & acqui­si­ti­ons. He advi­ses invest­ment compa­nies and their port­fo­lio compa­nies on company acqui­si­ti­ons and sales, joint ventures and restructurings. 

His range of advice includes not only tran­sac­tions, but also stra­te­gic advice for compa­nies in their growth. In addi­tion, Dr. Fenck also provi­des his clients with compre­hen­sive corpo­rate law advice, inclu­ding restruc­tu­rings and coope­ra­ti­ons. He is co-head of the Corpo­rate / M&A service line and head of the Private Equity prac­tice group. 

TFenck@goerg.de