M&A in Germany and the U S A

After several years of M&A activity in the US and more than two decades in Germany, it’s time to draw a comparison. What are the differences between the two countries when it comes to buying companies? Can the two even be compared? Any comparison will, of course, have its limitations—the markets are simply too different in size. However, since the M&A process is fundamentally the same in both countries, it’s worth making a few comparisons. So, let’s give it a try!

1. Duration of the Process

The US has a clear advantage here. From initial contact to closing, the entire process can sometimes be completed in just 60 days. That’s nearly impossible in Germany. For one, the fact that business transactions (especially for GmbHs) typically require notarization already introduces delays. This isn’t necessarily a bad thing—it has both pros and cons. US buyers and sellers are generally faster, while Germans tend to plan longer and analyze decisions more thoroughly (a stereotype, perhaps, but it aligns with my experience).

2. Deal Sourcing

If you’re geographically flexible in the US, you’re unlikely to run out of potential targets due to the sheer size of the market. Germany, being smaller, has a natural disadvantage in this regard. Looking at off-market deal sourcing, US companies are far more open to initial discussions or discovery calls. Germans, on the other hand, tend to have an aversion to cold outreach. This is partly due to heightened awareness of data privacy and the stricter regulations surrounding it. In Germany, cold calling is generally frowned upon (even though it’s still a necessary evil for many). In the US, the attitude seems more welcoming; people appear genuinely interested in opportunities that create value.

3. Transaction Structures

US buyers offer significantly more attractive models. A large upfront cash component often plays a key role, reflecting a higher risk tolerance. In Germany, the focus is more on security: 50% cash, 15% earn-out, 15% seller’s note, and the rest as rollover equity. This conservative approach makes it much harder to convince targets to sell in Germany compared to the US.

4. Sustainability

This one goes to Germany. Experience shows that German buyers are much more focused on supporting long-term growth for the target company. The emphasis is on longevity—sometimes it even feels like it’s “for eternity.” With US clients who advertise buy-and-hold-forever strategies, “forever” often turns out to mean about seven years, on average.

S E A R C H F U N D S

Let’s take a moment to compare the topic of search funds, which are currently gaining traction in Germany. Although, let’s not forget, they’ve only been around since 1984—a little jab I couldn’t resist. ;-)

A comment I posted on LinkedIn recently stirred up a lot of disagreement. I remarked that it’s a challenging environment in Germany to establish a search fund and successfully acquire a company—and I stand by that statement.

In the US, creative investment structures are well-established. You often don’t even need a traditional bank for financing anymore. Here, investors are valued for the advisory role they bring to the table. Experience often outweighs equity. Access to capital is significantly easier in the US, though there are challenges here as well. The primary issue for search funds is finding targets willing to sell to a search fund. Why? I’ve touched on this in previous discussions. In Germany, this factor is even more pronounced.

We are currently supporting two search funds in Germany, and the response rate is low. German business owners typically prefer to talk to strategic buyers, as that’s easier for them to rationalize. Alternatively, they consider private equity firms, often associating them with higher offers—which, by the way, is not necessarily true.

Back in 2013, we supported MBI (Management Buy-In) candidates. Even then, financing in the background wasn’t the issue. The problem was always the idea of a private individual wanting to buy “my business” without even being from my industry. This led to very few MBI candidates successfully acquiring a business in Germany. I’ve seen many brokers who specialized in this buyer group come and go—it just wasn’t profitable or successful.

Do search funds have a future in Germany? Time will tell. I believe there needs to be a fundamental shift in entrepreneurial thinking in Germany. It’ll be interesting to see how this evolves.

Do search funds have a chance in the US? Yes, but investors must ensure that the searcher has a relevant industry background. With that in place, the model will continue to thrive.

Greetings from Austin,

Andre