After challenging years, a trend reversal appears to be emerging in the German market for mergers and acquisitions (M&A), according to an update from KPMG Germany.
KPMG Germany noted in a research study that 65 per cent of companies initiated and completed more deals in 2024 than in the previous year, “while the figure for private equity (PE) investment firms was 44 per cent.”
This is shown by the “M&A Outlook 2025”, for which KPMG surveyed almost 200 “top decision-makers” from companies and private equity firms in Germany.
Over half of these companies have an annual turnover of “at least 500 million euros or manage funds of over one billion euros.”
While a volatile interest rate environment, economic uncertainties and geopolitical tensions have not disappeared, “the bottom seems to have been reached with regard to the coming year: 85 per cent of companies expect the M&A market to be significantly more dynamic in 2025, and almost all private equity firms (91 per cent) also expect more transactions.”
Expressed in concrete figures, 76 per cent of companies and 84 per cent of PE firms want to complete “at least one transaction or more in the coming year.”
A good third (30 per cent) of the companies expect “a deal volume of between 500 million and one billion euros.”
Companies today operate in a very dynamic environment “characterized by technological and ecological upheaval.”
The research report from KPMG Germany also noted that pressure on organizations to “adapt their business models is increasing.”
This is revitalizing the transaction market, the report reveale.
Many decision-makers are reorganizing their companies with targeted acquisitions, making them fit “for the future in the long term.”
However, alternative transaction structures “such as joint ventures or alliances are also becoming increasingly popular in the M&A market.”
The study shows: Two out of three companies (69 per cent) are “planning to enter into a joint venture or strategic alliance in the next year, partly in order to share resources and risks between the partners.”
When asked about their primary transaction objectives, 87 percent of companies and 75 percent of private equity investments “prioritize setting a sustainable course over quick course corrections: above all, they want to strategically secure the growth and value of their organizations in the long term.”
More than half of the companies (57 per cent) and PE firms (53 per cent) also see opportunities to “penetrate new market segments and customer groups.”
Despite the foreseeable brightening of the M&A market, the “overall economic situation remains a challenge for those surveyed.”
In addition to overly high seller expectations “in terms of company valuation, 61 per cent of companies and 59 per cent of PE investments see the general uncertainty on the market as a major hurdle in the initiation of deals.”
However, only around a third cite difficult “financing conditions as an obstacle.”
Company valuation also plays an “overriding role in concrete negotiations. 41 per cent of companies (PE: 44 per cent) find it difficult to reach an agreement with the contractual partner on the valuation; 44 per cent of companies (PE: 47 per cent) are feeling increasing pressure to renegotiate previously agreed contractual terms or company values due to the current economic situation.”
A change in interest rates would have surprisingly “little impact.”
In the event of a hypothetical fall in interest rates of “0.5 per cent, only 19 per cent of companies and 22 per cent of private equity firms would become more active on the transaction market.”
The majority or 81 per cent of respondents also see a “constant low interest rate level as a prerequisite for a return to the transaction volume of previous peak times.”