DC Advisory Germany’s 2025 Outlook: Reshaping Europe and the investment environment to come

Geopolitics and a shifting international order – what role do Germany and Europe play?

The cooperative approach to security that characterized Europe’s relationship with Russia has fundamentally failed[2]. As tensions escalate, Europe should be prepared for a prolonged phase of confrontation[3], where security is no longer a collaborative effort but a necessity to be secured independently.

Moreover, Europe faces heightened threats in the gray zone - a space where conflicts can appear without clear military engagement, including cyber-attacks, propaganda or misinformation campaigns, and sabotage, which complicate responses and blur the lines of accountability[4]. The aim of these gray zone tactics may be to undermine open societies and destabilize state systems, necessitating a comprehensive response that extends beyond military solutions to include resilience-building measures.

Geopolitical shifts in the international order have the potential to influence Germany and Europe’s economic stability. Most prominently, the strained relationships within Europe, ongoing conflicts, and geopolitical tensions, are challenging to the foundations of peace, freedom, and prosperity that Germany has long relied upon. As a result, German markets and industries may be directly impacted, creating potential issues and opportunities for M&A activity in the region.

Reshaped security framework and implications for M&A

The reshaping of Europe’s security framework[5], transitioning from a cooperative stance with Russia to one marked by conflict, reflects a larger trend in the international order. Globally, the rivalry between China and the United States is adding further complexity.

Despite its historical strengths, Europe finds itself poorly prepared for the external challenges it faces. Political cohesion within the European Union (EU) is under increasing strain, leading to a growing reliance on bilateral and multilateral alliances and initiatives that can bypass EU institutions[6]. This fragmentation is exacerbated by the EU’s institutional complexity, and differences of opinion, which can hinder swift decision-making and action. Furthermore, the attractiveness of Western democratic models may be waning, prompting questions about the future of European unity and cooperation[7].

Germany, as a key economic player in Europe, finds itself in a position where geopolitical shifts are not only economic and security concerns but also potential drivers for M&A activity. Ongoing uncertainties may lead to increased interest in strategic acquisitions within Germany as companies look to secure assets and consolidate resources, whilst rising energy prices caused by geopolitical conflict has materially impacted Germany’s manufacturing base[8].

Dip in German M&A levels – distressed assets and carve-out activity remains strong

We are currently seeing an unexpected decline in buyout volume in Germany with a 20% drop in Q3 2024, compared to both Q3 2023 and Q3 2022[9]. However, despite this dip, there remains considerable activity, particularly with distressed assets and carve-outs becoming more prevalent. The current lending environment is turning into a borrower's market again - liquidity is fueling the debt markets as banks, institutional lenders, and capital markets are set to deploy money, which positively impacts pricing, fees and overall leverage[10]. We believe that valuation remains the gating item for deals to transact. 

We are seeing notable M&A activity in sectors such as Chemicals[11], Healthcare[12], Software (notably SaaS)[13], and Dietary Supplements[14]. In particular, the variety of assets coming to market is expanding, reflecting the broader appetite to transact across multiple sectors in Germany. As pipelines begin to fill, we expect more assets to be brought to market, responding to the pressures from a backlog of deals that had been on hold for several years.

A positive outlook for German mid-market M&A

We believe that the outlook for the German mid-market is positive, with a steady quarter-on-quarter increase in deals coming to market, suggesting a robust environment for mid-sized transactions[15]. We anticipate that larger deals, which have been scarce in 2024, will gradually return next year as market conditions stabilize. Notably, there is a strong pipeline of companies preparing for market entry, driven by a high level of pitch activity, indicating readiness for a rapid response once conditions are favorable.

German companies looking to expand or consolidate within today’s geopolitical environment should keep abreast of geopolitical developments so they can best position themselves to mitigate the risks and take advantage of potential opportunities.

If you would like to find out more about any of the themes discussed, in more detail, please get in touch with the Germany team here.

Register interest for future Germany M&A Outlook events here.

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Sources

[1] https://www.eea.europa.eu/publications/transformative-resilience-the-key-to-governing

[2] https://www.europarl.europa.eu/topics/en/article/20210128STO96606/eu-russia-relations-under-strain-what-are-the-causes

[3] https://www.atlanticcouncil.org/blogs/new-atlanticist/as-russias-war-effort-breaking-point-europe-steadfast/

[4] https://cepa.org/article/fogged-up-the-muddle-in-the-gray-zone/

[5] https://digital-strategy.ec.europa.eu/en/policies/cybersecurity-certification-framework

[6] https://www.eurofound.europa.eu/en/blog/2024/trust-crisis-europes-social-contract-under-threat

[7] https://www.eurofound.europa.eu/en/blog/2024/trust-crisis-europes-social-contract-under-threat

[8] https://www.politico.eu/article/europe-energy-bills-germany-brussels-pipeline-prices/

[9] Mergermarket: Total deal activity in Germany – All M&A transactions in the Germany region between 1-Jan-19 to 22-Oct-24 with deal values GBP 75 M and above

[10] DC Advisory European Debt Market Monitor Q3 2024 & Outlook

[11] https://www.dcadvisory.com/news-deals-insights/deal-announcements/dc-advisory-advises-sudarshan-on-its-acquisition-of-heubach-group/#gref

[12] https://newsroom.accenture.com/news/2024/accenture-completes-acquisition-of-healthcare-consultancy-consus-health

[13] https://saas.group/blog/saas-group-announces-acquisition-of-timebutler/

[14] https://www.avistacap.com/news_item/vision-healthcare-announces-the-acquisition-of-vitamaze-gmbh-a-leading-european-vitamins-minerals-nutritional-supplements-vms-e-commerce-player-predominantly-active-through-am/

[15] https://www.dcadvisory.com/news-deals-insights/insights/dc-advisory-s-european-private-equity-mid-market-monitor-q3-2024-outlook/