DC Discusses: Alternative exits and increased investment fuel optimism for DACH M&A, while CEE remains resilient

Is the tide turning?

Last year brought various challenges to the DACH and CEE markets in the form of supply chain disruptions, surging energy prices, and geopolitical uncertainty. At the same time, we noted periods of increased activity – seen recently in April ahead of the US election – but not a sustained upturn.

In recent months, however, the tide may be turning. Despite ongoing question marks around the future of geopolitical tensions, we are seeing more ‘readiness’ for deals and market optimism. We can see this investor confidence already manifesting through various megadeals in the region this year - DACH M&A deal value increased 32% in 2025 from 2024, despite a small decline in volumes[2].

A new era of spending for the German government: Infrastructure, Defense, and Healthcare

The post-election ‘historic’ spending in Germany’s annual federal budget - €22 bn more than the previous year[3] – signals a step away from previous fiscal restraint and toward spending.

The 2025 budget allows for a total investment of almost €116 bn, supported by the €500 bn infrastructure fund legislation passed earlier this year[4]. German infrastructure – including transport systems and broadband networks – has been prioritized for modernization and expansion in the budget, and we expect M&A activity in the sector to increase as a result. Further, the data center market remains a key priority for infrastructure investment and energy supply in Germany. With 500 operational data centers[5], Germany is leading the charge in this sector for Europe. The market is expected to reach $25 bn by 2029 at a CAGR of 6.2%[6] as demand and investment increase. Coupled with the increased uptake of AI, we anticipate this will continue.

Key components of the budget focus on investments in other priority sectors to be future-proof and modernize existing systems. For example, the €86 bn[7] allocated to defense spending represents an increase of €34 bn from 2023[8], from 1.5% of GDP to 2.4%[9]: in line with the notable shift in government policy across Europe toward increased defense spending. Similarly, legislation passed in March has eased strict borrowing rules to allow higher spending on defense[10]. As government policies adapt, so are perspectives on defense investment as investors seek to gain exposure to a growing market. As defense assets become increasingly attractive to new and existing investors, we anticipate an acceleration in sector consolidation in Germany and across broader European markets, in order to meet the required output from a rearmament perspective and utilize higher levels of spending.

Germany consistently allocates the highest share of GDP to healthcare in Europe,[11] and M&A activity has remained active in the sector as a result. We anticipate that the Healthcare sector is poised for increased activity, driven by the need for consolidation and an improved framework, coupled with a consistent high level of funding. Within the Healthcare sector, we see investors focusing on segments less exposed to regulatory risk, such as dental laboratories, occupational health, MedTech, and pharmaceuticals. The pharmaceutical space remains of interest despite supply chain issues as companies reconsider their dependency on foreign medical sourcing. Germany’s strong base of family-owned MedTech companies and university-driven innovation can offer significant opportunities for private equity to professionalize and scale businesses. The Hospital Reform Act is accelerating consolidation, with larger hospital groups absorbing assets and smaller hospitals converting to outpatient and ambulatory care services[12].  

Alternative exit strategies signify a recovering market

Last year saw a slew of successful IPOs in Germany[13] – a positive sign of a recovering market following two years of limited activity. This also signifies that this alternative exit route is once again viable for capital market investors to list, as well as pursue trade sales (or secondary and tertiary sales). At the same time, we remain aware that this market is more exposed to volatility; for example, a correction in the US stock market could dampen activity.

Continuation vehicles (CVs) are becoming increasingly prevalent in Germany, with most private equity firms now open to the concept. While the product’s reputation is still evolving, we have seen it gain acceptance among informed investors, particularly as a solution when fund lifetimes end but attractive assets remain. Historically, CVs were associated with underperforming assets; however, they are now increasingly viewed as a positive mechanism for extending investment in quality companies with further growth potential. In our latest Secondary Market Report, the team shares a strong outlook for the overall secondary market, expecting volumes to increase. Additionally, 100% of the secondary investor respondents to our survey anticipate that GP-led transaction volume will continue to grow over the next 2–3 years.[14]

Companies adapting to a challenging mid-market

The past 18 months have been exceptionally challenging for companies, bringing a new level of complexity to the mid-market. Geopolitical challenges have had a significant impact on nearly every aspect of a business – from increased supply chain scrutiny and regulatory export requirements, to soaring energy prices and the cost of digitalizing operations. These factors have made it more difficult for mid-market founders to rely solely on internal capital, prompting companies to seek advice and funding. Private equity firms are finding more opportunities in minority or equal-weighted stakes, rather than complete or majority acquisitions.

Takeaways for mid-market founders

• Do not underestimate the business value and impact of AI
• Do consider external assistance as a positive strategic asset, not a sign of weakness
• Do prioritize thorough digitalization of business processes to improve efficiency and competitiveness in the long term 

A positive outlook for DACH and CEE M&A

“The outlook for the DACH M&A market is more positive now than it has been at any point over the last three years.” 

Looking ahead, we are optimistic not only for the DACH market but for Europe overall. Interest rates remain steady and are unlikely to increase until 2027[15], supporting a more favorable financing environment. Following a few years of depressed M&A activity, the pressure to deploy / exit as fund lifetimes come to an end has reached fever pitch. Europe has retained its reputation as a stable and reliable investment environment, and we have observed an increased flow of money into EU-based funds. Should global economic stability continue, we anticipate Europe to remain an attractive destination for investment that needs to be deployed.

Investor sentiment in the DACH region has improved following increased government spending and a greater feeling of stability in the global economy. While the markets remain sensitive to geopolitical developments and risks, reopened exit routes and increased investment make us optimistic for the DACH M&A market moving into 2026.

CEE is also well-positioned for an increase in M&A activity, driven by long-term structural growth fueled by a maturing local investor base and EU convergence (Eurozone, Schengen memberships). As market sentiment improves, we believe investors with regional expertise will be best positioned to capitalize on new opportunities, with near-shoring of manufacturing supply chains and in-market consolidation of consumer facing businesses providing additional impulses.

If you would like to discuss any of the themes addressed, please get in touch with our DACH & CEE team here > 

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