i Deal activity

In 2018, the German private equity (PE) market continued to be very active in the first half-year but slowed down in the second. Looking at the aggregated numbers, the deal activity (buyouts and exits) remained on a high level both in terms of volume and number. With a total buyout volume of €17.9 billion, it did not reach the level of 2016.2 The number of buyouts did, however, increase slightly compared to the total for 2016. Four PE-backed initial public offerings (IPOs) took place in 2018.3

2018 total Half-year 1 (HY1) 2018 HY2 2018 Changes between HY1 and HY2
Total buyouts
(billions of euros)*
17.9 11.0 6.9 -37.27%
Total exits†
(billions of euros)‡
10.0 8.6 1.4 -83.72%

* See footnote 3; † Excluding IPOs; ‡ See footnote 3.

Large-cap companies are of particular interest especially for non-German PE investors. In 2018, five PE transactions exceeded the €1 billion threshold.4 The increase of the total number of PE deals in relation to a slight decrease of the volumes compared to 2016 shows that small and mid cap companies continue to constitute the predominant part of the deal activity of PE investors in Germany.

All in all, the volumes of PE transactions remain at a high level in Germany but show for the second year in a row a slight decrease (in 2016, PE transactions achieved a volume of €20.8 billion5 compared to €19.3 billion6 in 2017 and €17.9 billion7 in 2018). There is, however, still a way to go to reach the highest level of 2007 again.

PE buyouts

General development

In 2018, the aggregate buyout volume for PE transactions reached €17.9 billion.8 Compared to 2016, in which a volume of €20.8 billion9 was reached, this is a shortfall of approximately 14 per cent. The number of buyouts did, however, slightly increase from 190 in 2016 to 216 in 2018.10

2007* 2016† 2017† 2018†
Total buyouts by value (billions of euros)22.720.819.317.9
* Mergermarket; † See footnote 3.
Severe competition

Germany remains an attractive market for PE investors and in 2018 PE transactions have continued to be an important driver of the overall M&A activity in the German market. With an aggregate PE deal activity of €17.9 billion11 in 2018, PE deals contributed a little less than 45 per cent of the aggregate M&A deal activity of €40.5 billion in 2018.12 This is a significant increase compared to 2017, in which PE transactions contributed approximately 30 per cent to the aggregate M&A activity, and even exceeds the 2016 ratio, in which PE transactions contributed a little less than 40 per cent to the aggregate M&A activity in Germany. This shows that the already strong competition between strategic investors and financial sponsors for targets in Germany is increasing further. One very prominent example of this strong competition is the sales process for the Erwin Hymer Group (€2.2 billion). It was structured as a dual-track bidding contest, in which a number of large players in the PE market participated, including Centerbridge, Cinven, Cerberus, Triton and KPS Capital Partners.13 In the end the strategic investor Thor Industries won the race.

Large cap versus small and medium cap

With an aggregate value of €11.2 billion a large part of the overall buyout value can be attributed to five large cap transactions: (1) the sale of Techem (€4.6 billion)14 to Partners Group, Caisse de dépôt et placement du Québec (CDPQ) and Ontario Teachers' Pension Plan (OTPP), being the largest PE acquisition in Germany so far,15 (2) the sale of SUSE Linux (€2.2 billion)16 to EQT Partners AB, (3) the sale of Scandlines (€1.7 billion)17 to First State Investments and Hermes Investment Management, (4) the sale of a 89.9 per cent stake in Generali Lebensversicherung (€1.9 billion)18 to Cinven Partners, and (5) the sale of HSH Nordbank (€1 billion)19 to an investor group around Cerberus Capital Management and JC Flowers & Co LLC.

The major part of the overall deal activity were small and medium cap transactions with an aggregate value of €6.9 billion. Whereas this only reflects the transactions that are disclosed, the actual volume will be significantly higher, as in particular small and mid cap focused PE investors tend to keep the acquisition value secret.


In terms of industries, the highest transaction value was achieved in the sector of other services (€5.9 billion)20 followed by financial services (€3.1 billion),21 information technology (€2.8 billion),22 transportation and logistics (€2.1 billion)23 and pharma and healthcare (€1.7 billion).24 In 2016, the top two industries that attracted PE investors were chemicals (€4.1 billion)25 and real estate (€3.3 billion).26

In terms of number of deals the information technology sector attracted most financial sponsors, with 30 transactions, which is in line with figures in 2016, in which the largest number of transactions was also attributable to the information technology sector (15).27 The information technology sector is followed by other services (25), pharma and healthcare (23), financial services (7) and transportation and logistics (4).28

The above figures show, that in particular the interest in the healthcare sector has increased over the past two years. As prominent example Nordic Capital announced in 2017/2018 the acquisition of Alloheim, the second largest private German care home operator29 for about €1.1 billion.30 In early 2018, Nordic Capital also announced the formation of European dental clinic platform by acquiring several brands in Germany and Europe, including DPH Dental, Zahnstation and Adent and Dental Clinics .31

Exits (other than IPOs)

The number of exits remains with 112 on the same level as in 2016.32 There is still quite a shift from sales to strategic investors to sales to PE investors. Although the overall relevance of secondary buyouts has slightly decreased compared to 2017, the overall trend that PE investors take a decision in form of a secondary buyout remains unbroken. In 2016 around 70 per cent of all exits and approximately 65 per cent of the value of these exits were made to strategic investors. In 2018 less than 60 per cent of all exits and only approximately 30 per cent of the value of these exits related to transactions with a strategic buyer. In total the number of secondary buyout transactions increased compared to 2016 by around 26 per cent from 38 in 2016 to 48 in 2018.33

Two of the most prominent secondary buyouts in 2018 were (1) the €4.6 billion sale of Techem by Macquarie to Partners Group, CDPQ and OTPP, and (2) the €1.7 billion sale of Scandlines by 3i to First State Investments and Hermes Investment Management.

2007* 2016† 2017† 2018†
Sales to strategic investors
(value in billions of euros, and number)
€16.8 billion €13.1 billion (74) €8.1 billion (60) €4.4 billion (64)
Secondary buyouts
(value in billions of euros, and number)
€14.8 billion €7.1 billion (38) €7.5 billion (53) €10 billion (48)
Total €31.6 billion €20.5 billion €15.6 billion €14.4 billion
* Mergermarket; † See footnote 3.

ii Operation of the market

Sales process

As in previous years, in 2018, a large number of transactions were structured as bidding contests, in many cases including a dual-track process. While an IPO is generally still considered a viable option for an exit, the actual numbers show that IPOs rather constitute the exception in Germany (see above). The vast majority of sales processes ultimately resulted in private sale transactions. One-on-one transactions are still the exception, which again shows that the market remains seller-friendly. With unprecedented amounts of dry powder in the market34 and continuous low interest rates, the race for targets continues to be challenging. Time is of the essence in competitive sales processes and PE investors are having to find the balance between a diligent assessment of the targets, limited information in due diligence processes (in particular in Q&A processes) and the appropriate level of opportunity costs. At the same time, the level of multiples achieved in the market remains high. Depending on the relevant industry, two-digit multiples continue to be unexceptional. In particular, software-based business models are highly competed for and achieve, in general, multiples above average. A prominent example is the acquisition of SUSE Linux by EQT for €2.2 billion, achieving an earnings before interest, tax, depreciation and amortisation (EBITDA) multiple of approximately 25.35 This high pricing level is in addition accelerated by the tendency that more and more strategic investors are willing, and able, to match offers by PE-backed bidders. On the other hand, investment committees of PE investors increasingly look very carefully at investment stories, in particular in a high-price market such as Germany.

Warranty and indemnity insurance

The year 2018 showed that warranty and indemnity (W&I) insurances have again found their place, particularly in structured large and mid cap sales processes. A large proportion of sales processes entailed stapled W&I insurance, where the sell side introduces the W&I insurance to the deal. Once the preferred bidders are selected, the W&I process is flipped over to the buy side. Depending on its level of sophistication, the sales process can be structured as either a 'soft' or a 'hard' stapling. In a soft stapling, the sell side will only obtain non-binding indications from insurers via its chosen broker based on the initial draft transaction documents, an information memorandum and the financial statements of the target. The ultimate negotiations will be conducted by the buy side after the flip over on the basis of the buy side's due diligence reports. In a hard stapling, the sell side also provides vendor due diligence reports to the insurers and initiates negotiations with the insurers. The draft policy is already provided to the buy side and finalised after the flip over to the buy side. In such cases, the buy side usually also provides top-up due diligence reports.

Because of the high demand for W&I insurances, the W&I solutions offered have become more and more sophisticated, and are also extending to regulated industries (such as financial services) for which it was hardly possible to obtain coverage a few years ago. Also the tickets that insurers are willing to cover have increased over the years. In particular, in large cap transactions the W&I insurance limits are increased by building 'towers', with several layers of insurance limits offered by a consortium of insurers.

Management equity incentive schemes

For PE investors, the implementation of management incentive schemes is one of the most effective tools to ensure the commitment of the management of the acquired target. There is a broad set of structures used in the market depending on the sophistication of the relevant investors and on the level of the management to be incentivised. While senior management members are often granted straight equity structures, to incentivise mid-level management stock appreciation rights, virtual shares, profit participations etc. are relatively popular as they are easy to implement and flexible.

The main goal when structuring management incentive schemes from a tax perspective is to get into a capital gains taxation category (up to 28 per cent taxation plus church tax) rather than a taxation as income category (up to 48 per cent plus church tax). Therefore, straight equity participations are often considered to be more tax efficient for management than stock options, virtual participations, etc. Tax authorities tend to qualify income from management participations as ordinary income, particularly if they have a strong link to the employment or service agreements (leaver clauses), and if the conditions are more favourable than those applicable to the other investors or shareholders. Structuring equity-based incentive schemes also aims at avoiding dry income of the relevant manager, which might be subject to the German income tax regime.

Equity-based incentives often range from 5 to 15 per cent of the issued share capital, taking into account equity-like instruments or shareholder loans. The economic ownership percentage is often significantly lower (e.g., 1 to 5 per cent). The relevant percentages are higher in small and lower mid-cap targets (particularly in the case of the acquisition of owner-managed targets in which the sellers roll over a certain part of their shares against issuance of new shares at the level of the investor). In large-cap transactions, the percentages are usually significantly lower, particularly if the management is asked to invest its own cash to ensure 'skin in the game'. The customary range of such a cash investment would extend to an amount equal to 1 to 1.5 times a fixed annual salary.

In connection with equity-based incentive schemes, shareholders' agreements usually mainly aim at securing flexibility for the PE investor, in particular with respect to capitalisation (e.g., as regards recapitalisation measures) and exit strategies. This often entails customary agreements on drag-along rights for the investors and cooperation obligations for management in exit situations, as well as holding periods post exit (in IPO scenarios).

The management, on the other hand, is generally granted a limited set of shareholders' rights, such as tag-along rights in exit scenarios or subscription rights in the case of capital measures. The deal for the management is often sweetened commercially by arrangements such as equity kickers, sweet equity or agreed floors for a guaranteed return.


i Acquisition of control and minority interests

The legal framework for the acquisition of control and minority interest has not changed materially over recent years and is – apart from certain notarisation requirements under German law, the formalities of which are often accompanied by the raising of eyebrows by foreign investors entering the German market for the first time – in line with what can be expected from a highly sophisticated legal environment. The acquisition of shares is the most common structure, whereas asset deal structures are in most instances the means of choice in distressed scenarios. However, in particular in carve-out scenarios in larger corporate groups, mixed share and asset deal structures became more common in 2018.

The acquisition of a target by a PE investor is often structured as leveraged buyout (LBO) and therefore financed partly by equity and debt. The PE investor typically acquires the target via a special purpose vehicle (SPV) that is held indirectly by the investing funds. In an acquisition structure aiming to acquire a German target, the most common legal form for the acquiring SPV (AcquiCo) is a German limited liability company (GmbH). In a typical LBO, the debt is taken up by the AcquiCo. Often, after closing, either the AcquiCo is merged with the target by way of an upstream merger or a fiscal unity is established between the AcquiCo and the target by way of a profit-and-loss pooling agreement. This optimises the tax structure and eases the repayment of the LBO debt out of the free cash flow of the target.

Equity-based incentive schemes (see above) are typically not implemented at the level of the AcquiCo but on a level higher up in the corporate structure.

ii Fiduciary duties and liabilities

The canon of fiduciary duties and liabilities is often stipulated in detail in shareholders' agreements, and is closely negotiated. This applies in particular to buyouts of owner-managed businesses in which the seller remains invested with a substantial stake. PE investors will generally not be involved in the day-to-day operations of their portfolio companies (e.g., by appointing portfolio managers as managing directors), but will rather influence the strategic decisions of the portfolio companies and provide industry know-how through seats on supervisory bodies. The specific legal framework generally depends on the legal form of the portfolio company and the investing entity. Most common are GmbH structures in which the parties are relatively flexible and can agree on a comprehensive regime of rights and duties of the investor. However, certain general statutory shareholders' duties have to be observed and cannot be derogated.

Capital maintenance

The PE investor has to observe the statutory capital maintenance rules stipulated in Sections 30, 31 and 43 of the German Limited Liability Companies Act (GmbHG) as regards GmbHs and Section 57 of the Germany Stock Corporation Act (AktG) for German stock corporations. These provisions stipulate the general principle that the share capital (and, as regards stock corporations, any equity) may not be redistributed to the shareholders (whether openly or covertly). A breach of this principle can lead to repayment claims against the recipient and even personal liability of the management.

In particular, in LBO scenarios in which upstream guarantees and security are requested from the debt providers to guarantee and secure the loans granted to the acquisition vehicle, the capital maintenance rules have to be observed. Upstream guarantees and security can constitute a redistribution of the share capital, in the event that they are not covered by an adequate compensation claim against the borrower at the time of the issuance of the security.36 Also, the management of the securing company remains obliged to supervise the development of the adequacy of the compensation claim after the guarantees and security have been issued. In cases of an increased risk regarding the adequacy of the compensation claim, the management is obliged to request security or indemnification to avoid personal liability pursuant to Section 43 of the GmbHG. Several aspects and nuances of the requirements for fulfilling this obligation are disputed. In practice, the finance documents will generally contain certain limitation language to limit the personal liability of the relevant management.

German Capital Investment Code

The German Capital Investment Code (KAGB), which implements the Alternative Investment Fund Managers Directive37 into German law, provides for regulatory restrictions regarding distributions to PE investors. Pursuant to Paragraph 292 Section 1 KAGB, distributions, capital reductions, share redemptions or acquisitions of treasury shares are restricted within the first 24 months of control having been obtained over a non-listed company by alternative investment funds (AIFs). Specifically, distributions that are made to shareholders are prohibited (1) if the net assets according to the annual financial statements fall below the amount of the subscribed capital plus non-distributable reserves, or would fall below that amount as a result of such a distribution (Paragraph 292 Section 2 No. 1 KAGB), and (2) if the amount of the distribution would exceed the amount of the result of the past financial year (plus profit carried forward and withdrawals from available reserves, less losses carried forward and legal and statutory reserves) (Paragraph 292 Section 2 No. 2 KAGB). Similarly, pursuant to Paragraph 292 Section 2 No. 3 KAGB, repurchases of treasury shares by or for the account of the company that result in the net assets falling below the threshold specified pursuant to Paragraph 292 Section 2 No. 1 KAGB are prohibited. Paragraph 292 KAGB does not apply to small or medium-sized target companies (i.e., companies that have fewer than 250 employees, a yearly turnover below €50 million, where the balance sheet total is below €43 million, or where the target company is a real estate special purpose vehicle (Section 287 Paragraph 2 KAGB, Section 2 of the annex to the Recommendation 2003/361/EC).

General fiduciary duties

Shareholders in a German GmbH are subject to a general duty of loyalty towards the portfolio company. The extent of this fiduciary duty depends on the circumstances of the individual case. In principle, shareholders may not induce the company to conduct business that is detrimental to the company or its business if they exert influence on management decisions. The general duty of loyalty may also include a non-competition and confidentiality obligation for the shareholders.


i Recent deal activity

Germany continued to be an attractive market for PE investors in 2018. Although the overall transaction value slightly decreased compared to the totals in 2016 and 2017, the number of transactions remained stable and even increased compared to 2016 (see Section I).

Providing another indicator of the continued importance of the German market for PE investors, several important players in the market decided to open new offices in Germany in 2018. As the German Mittelstand becomes more and more a focus of PE investors, and with small and medium-sized transactions proving difficult to coordinate out of European centres such as London or Paris,38 opening a local office in Germany has become an attractive solution. In early 2018, KKR announced that it would open an office in Frankfurt.39 The office finally opened in September 2018.40 The mid market-focused British PE investor Oakley Capital Private Equity opened an office in Munich, also in September 2018, underlining the relevance of the German market and the rest of the DACH41 region.42 Other participants, such as Gilde Healthcare and FSN Capital, are also building up teams in Frankfurt.43

ii Financing

In 2018, the financing trends that were seen in 2016 and 2017 continued. It has become common that LBO financings provide for one (maintenance) financial covenant only (typically a net leverage covenant). 'Covenant-lite' structures, which, until 2018, had not been seen in the German mid market, were successfully negotiated by PE investors in some (but very few) transactions. As the vast majority of mid-market LBO financings still provide for one financial covenant, PE investors continued to be focused on covenant headroom and EBITDA adjustments, such as cost savings and cost or revenue synergies, as well as extraordinary items. In this respect, the trend for increased headroom (often more than 30 per cent – or 35 per cent for unitranche financings) and EBITDA adjustments (often up to 20 per cent of the consolidated EBITDA) continued. In addition, some 2018 mid-market LBO financings provide for EBITDA cures, a feature absent from the market since 2008. Further, also in 2018, debt funds were able to increase their market share in the German mid market. Financing provided by debt funds for German mid-market LBOs made up about 50 per cent of mid-market LBO debt, compared to about 35 per cent in 2017.44 Depending on events impacting on credit markets generally (such as political and economic uncertainty), this trend can be expected to continue, as debt funds become increasingly able to underwrite large debt volumes (€300 million plus)45 and the number of banks lending alongside debt funds in the German LBO market by providing a super senior revolving credit facility (combined with a first-out term loan, as the case may be) increased once more in 2018. In this context, it can be noted that intercreditor positions between debt funds and banks lending on a super senior basis have become fairly standardised (based on Loan Market Association-based intercreditor agreements) and, hence, in most unitranche or super senior financings, only very limited intercreditor negotiations are to be expected.

iii Key terms of recent control transactions

Sale of Techem (€4.6 billion) to Partners Group, CDPQ and OTPP

In May 2018, Macquarie Infrastructure and Real Assets (MIRA), via Macquarie European Infrastructure Fund 2 (MEIF 2), sold its 100 per cent interest in Techem GmbH to a consortium of investors led by Partners Group and including Caisse de dépôt et placement du Québec and Ontario Teachers' Pension Plan for a consideration of €4.6 billion. Techem is a leading global energy service provider for the real estate sector and private homeowners. The transaction was subject to customary regulatory and antitrust approvals and was expected to close in the third quarter of 2018.46 The Techem deal follows the sale of competitor ista International GmbH to Cheung Kong Property Holdings Limited for €4.5 billion in July 2017.47

Sale of SUSE Linux (€2.2 billion) to EQT Partners AB

In July 2018, the EQT VIII fund acquired SUSE, a leading global provider of open-source infrastructure software for large enterprises, from the global infrastructure software business Micro Focus International plc (Micro Focus) for an enterprise value of €2 billion. SUSE is a German provider of an enterprise-grade open-source Linux operating system, with sales of US$320 million and about 1,400 employees. The transaction is subject to approval by Micro Focus shareholders, and customary regulatory approvals, and is expected to be closed in the first quarter of 2019.48 EQT is a leading investment firm with approximately €50 billion in raised capital across 27 funds. EQT funds have portfolio companies in Europe, Asia and the United States, with total sales of more than €19 billion and approximately 110,000 employees.49

Sale of Scandlines (€1.7 billion) to First State Investments and Hermes Investment Management

In March 2018, 3i and funds managed by 3i (together, Eurofund V), sold their investment in Scandlines for a total equity value of €1.7 billion, in a transaction with funds managed by First State Investments and Hermes Investment Management, two long-term infrastructure investors representing predominantly European pension funds. As part of the transaction, 3i is also reinvesting in Scandlines. The acquisition was completed in June 2018. Scandlines is engaged in ferry transportation services.50

Sale of an 89.9 per cent stake in Generali Lebensversicherung (€1.7 billion) to Cinven Partners

In July 2018, the Sixth Cinven Fund agreed to acquire the Viridium Group, a leading specialist for the management of life insurance portfolios in Germany, and to provide equity funding for Viridium to acquire Generali Lebensversicherung AG, a life insurer with around 4 million policies and approximately €40 billion of assets under management, in a transformational acquisition.51 The total transaction value for Generali amounts to approximately €1 billion, including earn-outs of €125 million.52 The transaction is subject to approval by the German Federal Financial Supervisory Authority and clearance by the competent German antitrust authorities.53

Sale of HSH Nordbank to an investor group around Cerberus Capital Management and JC Flowers & Co LLC

In February 2018, the Free and Hanseatic City of Hamburg and the state of Schleswig-Holstein sold their stake in HSH Nordbank AG for a consideration of approximately €1 billion. The purchasers are the independently acting funds of Cerberus European Investments, JC Flowers & Co, GoldenTree Asset Management and Centaurus Capital, as well as BAWAG. The acquisition was closed in November 2018. Hence, HSH Nordbank AG is the first successfully privatised Landesbank (or government-owned bank) in Germany.54 Cerberus Capital Management is a global leader in alternative investing, with more than US$34 billion under management across complementary credit, PE and real estate strategies. JC Flowers & Co is a leading private investment firm dedicated to investing globally in the financial services industry.55


i Merger clearance

PE transactions are often subject to merger control clearance either under the regime of the German Act against Restraints of Competition or under the EU Merger Regulation, if the relevant requirements are fulfilled.

On 9 June 2017, the amendments to the German Act against Restraints of Competition (ninth amendment of the Competition Act) entered into force, tightening the legal requirements for merger clearance. Prior to these amendments, the Competition act required, inter alia, that (1) the participating companies to a transaction had total worldwide revenues of more than €500 million in the most recently completed fiscal year; and (2) at least two companies had domestic revenues of which one company's was more than €25 million and (3) another company had domestic revenues of more than €5 million (second domestic threshold).

To date, these thresholds have not been particularly successful in catching transactions with (target) companies that have rather small revenues but strong innovation potential, network effects and high purchase prices (especially start-ups and digital companies). One example is Facebook's acquisition of WhatsApp, which was not subject to a notification requirement in Germany although the purchase price amounted to US$19 billion.56 Since 9 June 2017, an additional threshold based on the transaction value has been in effect. According to this threshold, a transaction must also be notified if (1) the above-mentioned thresholds are reached (except for the second domestic threshold), (2) the value of the consideration for the merger is more than €400 million, and (3) the company to be acquired operates domestically to a significant extent.

The term 'consideration' includes all assets and other monetary consideration (purchase price) as well as liabilities that the acquirer takes over. According to the legislative materials for the new Competition Act, the term 'consideration' is to be interpreted broadly. It includes any consideration that is contingent on subsequent fulfilment of certain conditions (earn-out clauses). In addition, depending on the particular case, reinvestments of acquiring parties granted at a discount (sweet equity) may also have to be considered.57

ii Foreign investment

In the case of a foreign PE investor acquiring a target in Germany, the transaction may be subject to review by the German Federal Ministry of Economic Affairs and Energy in accordance with the German Foreign Trade Act in conjunction with the German Foreign Trade Ordinance. On 19 December 2018, the German government once again extended the rules on foreign investment in Germany. As recently as mid 2017, the federal government had already significantly broadened the rules.58 The newest reform essentially has two effects:59

  1. The threshold for investments in certain types of critical infrastructure, defence companies and IT security companies is lowered from 25 per cent to 10 per cent. In other words, a foreign investor is now subject to the rules on investment control if it acquires shares of 10 per cent or more in one of the companies operating in these areas.
  2. With immediate effect, media companies are also deemed equivalent to critical infrastructure, so that (1) the threshold of 10 per cent described above also applies, (2) there is a reporting requirement for the acquisition of media companies, and (3) there is an indication that it jeopardises public order or security.

This second tightening of the foreign investment rules within a short period by the German government might have a significant impact on PE transactions in Germany as it broadens tremendously the filing requirements under German law. This will also have to be considered when structuring the sales process as the periods for a potential closing might be significantly longer.

iii Act on the Transposition of the Second Shareholder Rights Directive

As a consequence of European Directive 2017/828/EU, there will be changes to the AktG. The changes affect not only the stock corporations themselves but also institutional investors and asset managers. According to the Directive, and the draft of the implementation law of the German Federal Ministry of Justice issued in October 2018 (the Act on the Transposition of the Second Shareholder Rights Directive (ARUG II)), institutional investors as well as asset managers shall develop and publicly disclose an engagement policy that describes how they integrate shareholder engagement in their investment strategy. Additionally they have to disclose on an annual basis how their engagement policy has been implemented, including a general description of voting behaviour, an explanation of the most significant votes and the use of the services of proxy advisers. However, the implementation of these requirements is not mandatory. If the institutional investor or asset manager chooses not to comply with these requirements, that institutional investor or asset manager must publish a clear and reasoned explanation.

On top of that, institutional investors and asset managers shall disclose how the main elements of their equity investment strategy comply with the duration of their liabilities and how those strategy elements contribute to the performance of their assets.

However, these new requirements will only apply for institutional investors and asset managers who invest in shares traded on a regulated market in the sense of Article 4 Section 1 No. 21 Directive 2014/65/EU (known as MiFID II). Furthermore the measures of the implemented law under the AktG will only apply for institutional investors and asset managers registered in Germany. Ultimately, the impact of ARUG II on the PE industry will be very limited but will have to be considered at the level of potential portfolio companies within the scope of application. According to Section 134a Paragraph 1 of the German draft legislation, institutional investors means an undertaking carrying out activities of life insurance and of reinsurance or an institution for occupational retirement provision. To be considered an asset manager within the meaning of the law, the undertaking must be a financial services institution with permission to perform portfolio management in the sense of Section 1 Paragraph 1a No. 3 of the German Banking Act or a capital management company possessing an authorisation to conduct business according to Section 20 Paragraph 1 of the KAGB.


After a promising first half-year, which indicated a possible new peak in PE investing in Germany since the crash in 2007, in the end 2018 did not meet these expectations. The second half of 2018 showed a significant decrease of buyout activity, both in terms of volume and number of transactions. Although the overall level of PE activity in Germany remains at a high level, to a certain extent the slowdown comes as a surprise. Although at first glance this might be attributed to macroeconomic factors such as the United Kingdom steering towards an unpredictable Brexit or the success of right-wing parties in Europe (such as the AFD in Germany), to a certain extent it contradicts the overall development on a European level, which reached an all-time post-crash high in 2018, with overall buyout activity in Europe reaching US$195.5 billion (1,458 buyouts).60 This applies in particular as the general trend for conservative politics, both in European countries and in US policies, affects all Europe, and Germany is in certain respects rather deemed to be one of the potential beneficiaries of Brexit.

It remains to be seen whether, in 2019, the high level of PE transactions will be sustained or even increased. With unprecedented amounts of dry powder in the market and the continued low interest policy of the ECB, the market at least has sufficient liquidity to foster a successful 2019.


1 Volker Land and Holger Ebersberger are partners and Robert Korndörfer is an associate partner at Noerr LLP.

2 EY, Private Equity Transaktionsmarkt in Deutschland, 2. Halbjahr 2018.

3 Mergermarket lists the IPOs (1) Marley Spoon AG, (2) NFON AG, (3) STS Group AG, and (4) Westwing Group AG.

4 See footnote 3.

5 See footnote 3.

6 Ibid.

7 Ibid.

8 Ibid.

9 Ibid.

10 Ibid.

11 Ibid.

12 Ibid.

14 Mergermarket.

15 So war Private Equity 2018,Philipp Habdank, Finance Magazin, 15 January 2019.

16 Mergermarket.

17 Ibid.

18 Ibid.

19 Ibid.

20 See footnote 3.

21 Ibid.

22 Ibid.

23 Ibid.

24 Ibid.

25 EY, Private Equity Transaktionsmarkt in Deutschland, 2. Halbjahr 2016.

26 Ibid.

27 See footnote 3.

28 Ibid.

32 See footnote 3.

33 Ibid.

34 Mergermarket, Global & Regional M&A Report 2018, p. 10.

35 See footnote 15.

36 German Federal Court of Justice (BGH), NZG 2017, p. 344.

37 Directive 2011/61/EU dated 8 June 2011.

38 See footnote 15.

41 The neighbouring countries of Germany (D), Austria (A) and Switzerland (CH), which represent the largest community where German acts as the de facto nationwide official language.

43 See footnote 15.

44 See GCA Altium MidCap Monitor Q3 2018.

45 Ibid.

49 Ibid.

52 Mergermarket.

57 Ibid.

59 Ibid.

60 Mergermarket.