The Private Equity Review: Germany
i Deal activity
Driven by the covid-19 pandemic and the resulting global uncertainty, 2020 was a turbulent year for the German private equity (PE) industry. Following an unprecedented drop in deal activity in the second quarter of the year, it gained traction in the second half of 2020, ending up at a level that remained only slightly behind 2019. Looking at the aggregated numbers for 2020, the deal activity (buyouts) remained on a high level in terms of number of deals (193 deals), although this was a decrease compared with 2019 (223 deals).2 However, the 2020 total buyout volume remained relatively stable with €34.1 billion (compared with €36.9 in 2019).3 This was mainly because of a number of large-cap transactions, which included the sale of the elevator business of ThyssenKrupp to a consortium led by Advent, Cinven and RAG foundation for €17.2 billion, making it the largest leveraged buyout in Europe in a decade.4
The number of exits slightly increased from 68 in 2019 to 70 in 2020, whereas the value of the exits almost doubled from €7.6 billion in 2019 to €13.6 billion in 2020.5 The largest exit was the sale of Bombardier Transportation by Caisse de dépôt et placement du Québec as financial investor and Bombardier Inc as parent company to Alstom.6
|2020 total||Half-year 1 (HY1) 2020||Half-year 2 (HY2) 2020|
|Total buyouts (billions of euros)*†||34.1||23.1||11.0|
|Total exits* (billions of euros)†||13.6||1.1||12.5|
|* See footnote 2; †rounded numbers.|
Large-cap companies continue to be of particular interest, especially for non-German PE investors. In 2020, seven PE transactions exceeded the €1 billion threshold, reaching an aggregate value of €27.9 billion.7 Nevertheless, small and mid-cap transactions continue to constitute the predominant part of the deal activity of PE investors in Germany.
In 2020, the aggregate buyout value for PE transactions reached €34.1 billion.8 Compared with 2019, in which a value of €36.9 billion was reached,9 this is a slight decrease of approximately 7.6 per cent. The number of buyouts did, however, also decrease from 223 in 2019 to 193 in 2020.10 This represents a decline of 13.5 per cent compared to 2019.
|Total buyouts by value (billions of euros)||22.7||17.9||36.9||34.1|
|* Mergermarket; †See footnote 4.|
Once again, PE in 2020 recorded a high market share compared to corporate buyers. It shows that regardless of the disruptions caused by the covid-19 pandemic, Germany remains a very attractive market for PE investors, and in 2020, PE transactions continued to be an important driver of the overall M&A activity in the market. With an aggregate PE deal activity of €34.1 billion in 2020, PE deals contributed around 49.5 per cent to the aggregate M&A deal activity to which strategic buyers contributed €34.7 billion in 2020.11 This shows that the strong competition between strategic investors and financial sponsors for targets in Germany is continuing and PE investors continue to gain a larger share of the market. This might also be explained by the covid-19 pandemic, which led strategic buyers to reduce their M&A activity in terms of value by around 16 per cent compared to 2019.12
Large cap versus small and mid-cap
With an aggregate value of €27.9 billion, around 82 per cent of the overall buyout value can be attributed to seven large-cap transactions in Germany,13 the largest being the acquisition of ThyssenKrupp's elevator business by a consortium including Advent, Cinven and RAG for €17.2 billion (which is also the biggest ever buyout in Germany), followed by the €2.8 billion takeover of Deutsche Glasfaser by EQT and Omers14 and the acquisition of Flender Holding GmbH by Carlyle Group-managed funds for €2.025 billion from Siemens.15
The majority of the overall deal activity comprised small and mid-cap transactions with an aggregate value of approximately €6.9 billion. This only reflects the transactions that have a disclosed value; the actual value will be significantly higher as small and mid-cap focused PE investors tend to keep transaction values confidential.
The highest transaction value was achieved in the industrial sector (€17.6 billion), which was mainly driven by the acquisition of ThyssenKrupp's elevator business transaction with a value of €17.2 billion. The industrial sector is followed by automotive (€2.85 billion), telecommunications (€2.8 billion), healthcare (€2.05 billion) and information technology (€1.9 billion).16 In 2019, the top two industries that attracted PE investors were chemicals (€6.8 billion) and information technology (€5.7 billion).17
In terms of number of deals, the information technology sector attracted the most financial sponsors, with 46 transactions in 2020. This is followed by the industrial (30 transactions), consumer products (24 transactions) and healthcare (19 transactions) sectors.18
The above figures show that sectors that were less affected by the covid-19 pandemic were the focus of M&A investors in the German market.
Exits (other than initial public offerings)
In 2020, the number of exits (trade sales) increased to 70 compared with 68 in 2019. The aggregate deal volume nearly doubled compared with 2019. The number of secondary buyouts decreased from 30 in 2019 to 24 in 2020, and the transaction value doubled compared with 2019 from €3 billion to €6 billion.
|Sales to strategic investors (value in billions of euros, and number)||16.8||4.5 (66)||7.6 (68)||13.6 (70)|
|Secondary buyouts (value in billions of euros, and number)||14.8||9.9 (49)||3.0 (30)||6.0 (24)|
|* Mergermarket; †See footnote 4.|
ii Operation of the market
Merger control proceedings
The covid-19 pandemic has posed significant challenges to the functioning of authorities and in particular to merger control proceedings, where strict deadlines apply.
On 13 March 2020, the Directorate-General for Competition at the European Commission (DG COMP) encouraged market participants to delay new merger notifications until further notice, emphasising the current 'complexities and disruptions'. While the European Commission had put in place certain measures to ensure business continuity, it also noted that 'difficulties in collecting information from third parties, such as customers, competitors and suppliers, in the coming weeks' are anticipated. From 16 March 2020, all European Commission staff in 'non-critical' roles, including case handlers, moved to remote working, which meant fewer opportunities for face-to-face engagement with notifying parties.
In Germany, no such limitations were observed at the Federal Cartel Office (FCO). In a press release dated 17 March 2020, the FCO confirmed the functioning of its administration, but requested companies to consider whether any project or contemplated transaction could be presented and notified at a later date. However, fast-track decisions prior to the expiry of the statutory waiting period were less common in 2020, given the general reluctance (or inability) of national competition authorities.
Due to these challenges, and the need for staff to prioritise critical issues directly related to the covid-19 pandemic, the European Commission and national competition authorities also suspended statutory deadlines as practically needed and legally possible. The authorities can therefore request parties to submit information (request for information or RFI) with which the parties may not be able to fully comply; as a result, the proceeding may be put on hold for some time. In this climate, information requests can be a means to buy time in any transaction where the authorities (and the parties) consider it beneficial to suspend the waiting period. If no such suspension is possible, the situation may force parties to consider withdrawing notifications if the authorities do not feel confident to grant clearance of a transaction.19
The return of the MAC clause
In 2020, PE investors increasingly tried to include MAC clauses in transaction agreements (i.e., the right to rescind an agreed transaction in the event of a material adverse change (MAC) in the target's business operations or financial conditions). In the past, buyers invoked MAC clauses in Germany, for example, after the burst of the dotcom bubble in the early 2000s as well as during the financial crisis in 2007 and 2008. While MAC clauses have remained more common in the US market, in the past few years buyers in Germany were often less successful in implementing MAC clauses in transaction purchase agreements. This is because competitive auction processes do not allow for any contractual uncertainty in final bid documentation. However, MAC clauses could be agreed in restructuring or distressed M&A deals where the seller was dependent on a sale to a certain buyer at short notice.20
In the current covid-19 crisis, the MAC clause has come back in some transactions. Against the background of the first negative economic implications brought about by the rapidly spreading virus (e.g., many German companies were faced with interruptions in their supply chains, especially those producing in or being supplied from Asia; businesses in the travel and leisure industries were reporting substantial reductions in revenue in the light of cancelled events, travel restrictions or just general reduced travel and entertainment). Buyers were increasingly prompted to negotiate a MAC clause into transaction purchase agreements to have an (additional) option to walk away from a deal or at least reduce the purchase price. Often the sell side tried to specify the MAC event by stipulating quantitative hurdles (e.g., sales underperformance of 20 per cent or more compared to the business plan in a certain period). Particularly in locked-box deals (i.e., transactions with an economic cut-off date prior to signing), the absence of a MAC could be part of the ordinary course of business guarantee from the locked-box date onwards and, in addition, the non-occurrence of a breach of such a guarantee would be a condition for closing.21
In any case, whether a MAC clause may be triggered, even under the potentially dramatic circumstances caused by covid-19, depends on the specific wording of the MAC clause in question. For example, a MAC clause may often exempt a change in the general economic conditions (or the general conditions of the industry in which the target company operates) from the definition of a MAC. In such a case, a buyer would need to prove that the outbreak (or the increased spread) of covid-19 only resulted in a material adverse change for the target company's business, as opposed to a material adverse change in the economy in general or at least the target company's industry. It may also be difficult to prove that, with adverse business conditions because of the covid-19 pandemic already present at signing, the target's business has deteriorated even further to such a point that a material adverse change in the business can be assumed at the time of closing.
Even if a MAC clause does not provide for a specific definition of a MAC, the party looking to invoke the clause will need to prove the existence of an unforeseen adverse change that is material. The US courts have held that an adverse condition will only be considered a MAC if it is 'material when viewed from the longer-term perspective of a reasonable acquirer, which is measured in years' (Akorn, Inc v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL (del. Ch. 1 October 2018). It is currently unclear whether German law would also require such a long-term view when determining whether an event is considered a material adverse change under an unspecified MAC clause.
In agreements governed by German law without a specific MAC clause, buyers could also try to raise the objection of interference in the basis of the transaction (Section 313 German Civil Code) as a result of the outbreak of the covid-19 pandemic to attempt to be relieved of their contractual obligations. While the chances of success of this objection depend on the specific case in question, courts supply very high hurdles to allowing deal terms to be modified and even higher hurdles for a right to rescind.22
Purchase price adjustments versus locked box
While the German M&A market was traditionally dominated by 'locked box' mechanics, a shift to 'purchase price adjustment' mechanisms was notable in 2020. A fixed purchase price – determined on the basis of reference accounts pre-dating the outbreak of the health crisis – did in many cases no longer correspond to the actual economic situation of the target and its business.
The impact of the covid-19 pandemic on many businesses was hard to predict. PE investors therefore pushed, especially in the early days and months of the coronavirus outbreak, for the use of a post-closing purchase price adjustment mechanism (also known as closing accounts) to determine the final purchase price payable by the investor. In this mechanism, the purchase price is adjusted by reference to a set of accounts showing the financial position of the target as of closing. There is then usually a euro-for-euro adjustment to the purchase price to the extent that the value of cash, working capital and liabilities is greater or less than a target figure agreed by the parties prior to signing the purchase agreement.
The accounting principles governing the preparation of the closing accounts have been heavily debated in some PE transactions. For example, sellers and buyers disagreed on the extent to which certain specific policies should be included to reflect the changing market conditions arising from the pandemic.
There was also a rise in the number of earn-out clauses in PE deals in 2020. Although this tool may be seen as attractive under the current circumstances, its implementation in practice is often cumbersome. Earn-out clauses may be seen by the seller simply as a deferred payment, while the PE investor might be inclined to view the payment as fairly hypothetical.
However, when PE investors are unable to meet a seller's price expectations, an earn-out provision can help bridge the valuation gap. For the sellers, an earn-out provides an incentive to demonstrate their impact on future performance. The better the performance, the larger the eventual payoff.
II LEGAL FRAMEWORK
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, particularly in carve-out scenarios in larger corporate groups, mixed share and asset deal structures were also seen in 2020.
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 Section I) 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 or advisory 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.
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) regarding GmbHs and Section 57 of the German Stock Corporation Act for German stock corporations. These provisions stipulate the general principle that the share capital (and, regarding 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.23 In addition, 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 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 Directive24 into German law, provides for regulatory restrictions regarding distributions to PE investors. Pursuant to Section 292(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. 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 (Section 292 (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) (Section 292(2), No. 2 KAGB). Similarly, pursuant to Section 292, (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 Section 292, (2), No. 1 KAGB are prohibited. Section 292 KAGB does not apply to small or medium-sized target companies (i.e., companies that have fewer than 250 employees, or a yearly turnover below €50 million, where the balance sheet total is below €43 million or where the target company is a real estate SPV (Section 287(2) KAGB; Section 2 of the annex to 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.
III YEAR IN REVIEW
i Recent deal activity
Despite the unprecedented challenges caused by the covid-19 pandemic, Germany continued to be an attractive market for PE investors in 2020. Although the overall number of buyout transactions decreased compared with the totals in 2018 and 2019, the aggregate disclosed value of buyout transactions remained relatively stable (see Section I).
ii Key terms of recent control transactions
Sale of ThyssenKrupp's elevator business to a consortium for €17.2 billion
ThyssenKrupp AG sold its elevators division to a consortium including Advent, Cinven and RAG for €17.2 billion, making it the biggest PE deal in Europe since 2007.25 Reportedly, the group prevailed against a rival consortium comprising Blackstone Group Inc, Carlyle Group Inc and the Canada Pension Plan Investment Board. ThyssenKrupp Elevator is the world's fourth-largest elevator manufacturer behind United Technologies Corp's Otis, Switzerland's Schindler and Kone.26
Sale of Deutsche Glasfaser to EQT and OMERS for €2.8 billion
In February 2020, EQT Infrastructure and OMERS agreed to acquire Deutsche Glasfaser from KKR. Under KKR's ownership, Deutsche Glasfaser has become the fastest growing provider of gigabit internet connections through fibre-to-the-home (FTTH) in Germany. EQT Infrastructure will own 51 per cent in the combined group and OMERS will own 49 per cent.27
Sale of Flender Holding to Carlyle Group managed funds for €2.025 billion
In October 2020, global investment firm The Carlyle Group announced that it had agreed to acquire Flender Holding GmbH, a market leader in mechanical and electrical drive technology, from Siemens AG for €2 billion.28 Headquartered in Bocholt, Germany, and active across 35 countries including Asia, Flender is a global leader in drive technology employing approximately 8,600 people and had sales of approximately €2.2 billion in FY20.29 The company's comprehensive product and service portfolio includes gearboxes, couplings and generators for a wide variety of industries.30 The business is particularly strong in wind power, a sector benefitting from secular tailwinds given its increasing importance in the energy mix.31
Sale of Neuraxpharm to Permira for €1.6 billion
Permira has agreed to acquire a controlling shareholding in German pharmaceutical Neuraxpharm from UK PE firm Apax Partners, in one of the largest European pharmaceutical deals of 2020. Based in Düsseldorf, Neuraxpharm is focused on treatments for the central nervous system, providing medication for patients suffering from chronic neurological and psychiatric disorders including epilepsy, Parkinson's, Alzheimer's, depression and psychosis.32
IV REGULATORY DEVELOPMENTS
i Foreign investment33
On 22 January 2021, the Federal Ministry for Economic Affairs and Energy (BMWi) published a ministerial draft of the 17th revision to the Foreign Trade and Payments Ordinance (AWV), in which it proposes to tighten German foreign direct investment screening for the fourth time in less than 12 months. The stated aim of the draft revision is to adapt the AWV to the provisions of the just-amended Foreign Trade and Payments Act (AWG) and to transpose further aspects of the EU Screening Regulation (Regulation (EU) 2019/452 of 19 March 2019) into German foreign direct investment screening legislation. The draft revision also contains measures that substantially tighten and expand the scope of German foreign direct investment screening, making the draft revision highly controversial.
Among other things, the draft contains four key changes.
Firstly, the draft introduces a large number of additional case groups for target companies concerned in the context of the cross-sectoral review (under Section 4(1) No. 4 and Section 5(2) AWG and Sections 55 to 59 AWV). The creation of each new case group triggers a reporting obligation for investments from third countries, lowers the applicable threshold of controlled voting rights from 25 per cent to 10 per cent, involves a comprehensive prohibition on implementing transactions, leading to a presumption that there is a threat to German public order or security which can ultimately lead to a restriction on acquisition. The number of case groups is to be significantly expanded from currently 11 to 27. The focus of the new case groups is on future and key technologies such as artificial intelligence, autonomous driving, robotics and cyber-security.
Secondly, the sector-specific review (under Section 4(1) No. 1 and Section 5(3) AWG and Sections 60 to 62 AWV) is to be expanded to all acquisitions of companies that develop, manufacture, modify or have de facto control over listed military technology and equipment. This is in conjunction with a reporting obligation (in this area, for each foreign investment regardless of whether the buyer comes from the EU or from a third country), a lowering of the applicable threshold of controlled voting rights from 25 per cent to 10 per cent, a comprehensive prohibition on implementing transactions, and a presumption that that there is a threat to German public order or security. Especially with regard to target companies supplying corporate groups that in turn manufacture military goods, this appears to greatly increase the number of planned acquisitions that will need to be reported to the BMWi, well above the doubling already estimated in the draft revision. According to the applicable export control rules, the list of controlled items also includes 'specially designed' components for listed military equipment, and the authority responsible for export control in Germany, the Federal Office for Economic Affairs and Export Control, interprets the characteristic of special design in a very broad manner.
Thirdly, special attention should be paid to a provision according to which, for the first time since the inception of the German rules on foreign direct investment screening, the acquisition of rights of control and management are also to be taken into account. Previously, to determine whether the key thresholds of controlled voting rights were met or exceeded (10 per cent in the area of acquisitions requiring reporting or 25 per cent for all other acquisitions) the only factor taken into account concerned the nominal voting shares. According to the provision now envisaged, it will be enough for the acquirer to acquire a voting share below the relevant threshold if it is accompanied by the 'promise of additional seats or majorities on supervisory committees or in the management', the 'granting of veto rights in strategic business or personnel decisions' or simply the 'granting of rights to information', and thus in each case an influence on the domestic company is conveyed that corresponds to a voting share of 10 per cent or 25 per cent.
Finally, the revision contains a provision described as a 'clarification', which is meant to codify the BMWi's investment screening practice to date and which assumes that investment screening applies in the case of each share increase above the relevant thresholds of 10 per cent or 25 per cent. This is meant to apply even if the acquirer has received a certificate of non-objection or approval from the BMWi for its previous share purchases. Even minimal changes in shareholdings or intra-group restructurings can thus be reviewed by the BMWi and may have to be reported without any obvious need to do so.
The impact of the draft of the 17th revision of the AWV on transaction practice would be considerable. The BMWi itself estimates ('conservatively', it says) that the number of reportable acquisitions will rise by around 180 per year (150 in the cross-sectoral examination, 30 in the sector-specific examination). The BMWi has included in this estimate the fact that UK investors are now also subject to foreign direct investment screening as a result of Brexit.
ii Merger control
On 19 January 2021 the 10th amendment to the Act against Restraints of Competition (ARC) came into force.34
Under the 10th amendment to the ARC, both national turnover thresholds are being raised significantly. The first national turnover threshold is set at €50 million (previously €25 million) and the second national turnover threshold at €17.5 million (previously €5 million). The de minimis clause of Section 35(2) sentence 1 ARC has been deleted. According to this provision, a merger of a non-dependent undertaking with an annual global turnover of less than €10 million did not have to be notified. As a result, such mergers still do not have to be notified in the future as such undertakings will stay below the new second national turnover threshold. The amendment will lead to a reduction of filings going forward.
The 10th amendment to the ARC also newly introduces a request to notify future mergers (Section 39a Draft ARC). The German Federal Cartel Office will be able to impose, by corresponding order, an obligation on undertakings, applicable for three years in each case, to notify all concentrations within certain sectors after a sector inquiry has been conducted, provided that the following requirements are met: the acquiring undertaking alone has to generate global revenue of more than €500 million and the target has a global revenue of more than €2 million, with Germany accounting for two-thirds of the target's revenues. There must be indications that future mergers would be likely to impair effective competition within the relevant industry sectors. The acquiring undertaking must hold market shares of at least 15 per cent within such industry sectors. The rule is aimed at gradual acquisitions that each in itself were previously not subject to merger control and lead to an extensive concentration of the market.
Examples of other relevant changes include: (1) the main examination proceedings (phase II) will be extended by one month to a total of five months from filing; (2) future electronic merger control filings can also be submitted by lawyers to a special electronic administration mailbox; (3) the obligation to notify the completion of a merger will cease to apply; (4) the minor market clause will be raised from €15 million to €20 million; (5) for mergers of press undertakings (not including broadcasters) the turnover multiplier will be reduced from eight to four; and (6) for certain mergers in the hospital sector, merger control regulations will temporarily not apply, under Section 186(9) ARC.
PE investments will play a significant role in the German investment market in 2021. The vast amount of dry powder in the market, the low interest rate environment and the fact that a lot of companies hit by the covid-19 pandemic might be considered as valuable assets will induce PE investors to acquire attractive targets with a great upward potential. Given its stable political and legal environment, and as the leading economy in the EU, Germany will remain a very attractive market for inbound investments. Furthermore, the Joe Biden presidency will improve the trade relationship between the US and the EU and presumably ease existing tensions with China and Iran. However, as long as the covid-19 pandemic continues, the economic situation will remain challenging. Yet the general outlook for the German PE market looks bright and is likely to improve even further in the second half of 2021 given that various and effective vaccines against covid-19 have been authorised and are in use. Despite the ongoing economic recovery with an expected growth in GDP of approximately 2.8 per cent (according to a recent Organisation for Economic Co-operation and Development forecast), the German market will probably see an increase in distressed transactions in various industry sectors severely impacted by the covid-19 pandemic, such as the travel and hospitality markets. Investors focused on restructuring scenarios might have a busy 2021. Finally, since the United States has re-joined the Paris Climate Accord, one might also expect more investments in renewables given Germany's important role in this market.
1 Volker Land and Holger Ebersberger are partners and Robert Korndörfer is an associated partner at Noerr PartGmbB.
2 Based on searches in the Mergermarket database for Private Equity buyouts, exits and secondary transactions in Germany.
4 EY, Private Equity Der Transaktionsmarkt in Deutschland, 1. Halbjahr 2020.
5 See footnote 2.
13 See footnote 2.
17 EY, Private Equity Der Transaktionsmarkt in Deutschland, Gesamtjahr 2019.
18 See footnote 2.
23 German Federal Court of Justice, NZG 2017, p. 344.
24 Directive 2011/61/EU dated 8 June 2011.