A challenging start: M&A trends in a transforming market environment
Despite major geopolitical conflicts and the economic turmoil they have caused, German M&A activity remained relatively stable in the first half of 20261 compared to the same period in 2025, with only a 3% reduction in the number of deals. The winners among the sub-sectors were Automotive (92% increase in deals), Engineering & Construction (12% increase) and Business Services (7% increase), while deals declined in Aerospace & Defence and Manufacturing by 36% and 32% respectively.
As we highlighted in our outlook at the beginning of the year, technological disruption and sector-wide transformation are continuing to drive dealmaking, supported by government spending in defence and infrastructure. We have also identified several other common threads in the current M&A market in Germany:
- Valuation gaps between buyers and sellers are still widespread.
- Family-owned and founder-owned businesses are increasingly looking to outside capital for succession.
- Despite economic difficulties across the sector, companies in distress or under administration are finding investors.
- Buy-and-build strategies are being used to create market-leading platforms.
“Cross-sector convergence is becoming a defining feature of M&A, with industrial assets increasingly being assessed for their relevance across defence, energy or digital infrastructure.”
1 Figures for H1 2026 only include data up to May, as the full 6-month dataset was not yet available when this report was compiled.
Aerospace and Defence
Following a surge in deals in recent years, dealmaking momentum in the German Aerospace & Defence (A&D) sub-sector remains high, albeit with a decline in the number of deals compared to the high levels seen in H1 2025. As anticipated in our outlook, M&A is driving growth in vital A&D segments, particularly defence, fuelled by the need to strengthen European sovereignty, expand capabilities and build a more resilient industrial base.
The growing need to strengthen European sovereignty is, among other things, providing benefits to the startup ecosystem, as reflected in recent funding rounds. In particular, drone manufacturing companies such as Stark Defence are continuing to attract investor interest, as are players in the space segment.
Established defence players are making targeted acquisitions to strengthen their capabilities. A prominent example is defence firm Heckler & Koch’s acquisition of precision measuring equipment manufacturer Oberndorfer Präzisions-Werk GmbH. This transaction provides Heckler & Koch with additional manufacturing capacity, as well as strategically important expertise in high-precision manufacturing. Use of M&A to close gaps in companies’ expertise and acquire critical technologies is a widespread trend that we have observed across all sub-sectors.
The A&D sub-sector also continues to attract interest from non-defence companies looking to leverage their expertise and idle capacity to diversify and harness new opportunities for growth.
In parallel, the German civil aviation industry is experiencing dynamic growth, driven by strong international demand and the ongoing ramp-up in production across the aviation sector, although it is having to face the challenge of higher fuel costs resulting from ongoing geopolitical tensions. This momentum was also reflected in deal activity in the first half of 2026, with particular interest in aviation service providers specialising in cabin interiors.
Looking ahead, we expect deal activity in aviation to continue. Companies are likely to benefit from the German Government’s newly adopted aviation strategy, which aims to make Germany a centre of sustainable, safe and competitive aviation. Nonetheless, companies continue to face structural challenges despite this positive outlook, including the skills shortage, fragile supply chains and growing international competition.
Automotive
Although Automotive M&A has risen significantly from the lows of H1 2025, dealmaking remains subdued compared to previous years: this reflects the overall difficulties that the sub-sector is facing. Excess capacity and stiff competition, for both OEMs and suppliers, are leading to a growing number of companies falling into distress. These structural difficulties are not expected to subside in the short term, so restructuring-driven transactions are likely to continue.
As we highlighted at the beginning of 2026, M&A is underpinning and driving the transformation of the sub-sector towards software-led and electrified mobility solutions. Optimising capital allocation also remains a focal point for German Automotive companies, divesting non-core assets to free up capital – at least in part to fund this transformation. This is exemplified by Mercedes-Benz investing in Wayve Technologies, an autonomous driving startup, while divesting their car leasing subsidiary Athlon to BNP Paribas, alongside ongoing divestment of the remaining Mercedes-Benz-owned dealerships. We also expect to see Automotive companies continuing to enter joint ventures and partnerships to pool the resources and capital needed to get to grips with the sub-sector’s transformation.
Excess production capacity, especially in Europe, is driving Automotive players to assess alternatives for underutilised plants. Selling these plants to defence players to meet the increased demand for defence production capacity is one possible option: although no transactions have materialised so far this year, we expect to see deals in this space in the future, in line with as-yet unconfirmed reports.
Business Services
As anticipated in our outlook, demand remains strong for Business Services assets. However, we saw a decline in transactions involving professional services firms in H1 2026 compared to previous years, especially around management consulting firms and accounting and tax advisory firms. AI and the challenges it poses for these companies’ business models are a major concern, with investors scrutinising pricing, margin pressure and overall disruption to delivery models.
By contrast, services firms with AI-centric or AI-enhanced business models have retained traction. Companies working in IT consulting, managed services, cybersecurity, or testing, inspection and certification have continued to attract investor interest. Specialised consulting firms have also garnered interest – notably, logistics advisory firms, which is most likely due to upheaval in supply chains and the anticipated need for consulting services to navigate these changes.
Additionally, the workforce disruption caused by AI is creating attractive opportunities for employee services companies. Employee leasing and hiring companies, education-related companies and others have seen a steady flow of deals and are expected to remain an area of focus.
Accounting and tax advisory services firms have seen major changes in the rules on third-party ownership. The latest amendments to the German Tax Consultancy Act (Steuerberatungsgesetz), adopted in H1 2026, have closed or minimised a number of loopholes which previously allowed non-chartered accountants and tax advisors to acquire these companies. As a result, we expect to see a reduction in transactions in this space going forward.
As we highlighted at the beginning of the year, sustainability is also continuing to drive deal activity within Business Services: this can be seen in multiple transactions involving waste management or recycling companies in H1 2026. We anticipate that investors will keep an eye out for opportunities in this space for the remainder of 2026 and beyond.
Engineering and Construction
Dealmaking in the German Engineering & Construction (E&C) sub-sector remained robust in H1 2026, with sustained high levels of activity and corporate buyers continuing to play a leading role. Strategic acquisitions being undertaken in E&C are primarily aimed at expanding capabilities, broadening services and positioning companies for growth in end markets where significant support is available. This is exemplified by Strabag’s acquisition of H&E Bohrtechnik GmbH, a company specialising in horizontal directional drilling: this both expands Strabag’s portfolio and strengthens its ability to undertake complex infrastructure projects in-house.
Against this backdrop, deals are increasingly focusing on infrastructure expansion, particularly in civil engineering fields such as cable and pipeline construction, road infrastructure, and energy grid projects, the latter also including district heating. This reflects sustained demand driven by public investment programmes and the ongoing transformation of energy systems. As anticipated, sustainability remains a key factor in investment across the sector. Transactions are targeting companies with exposure to low-carbon building materials, sustainable and energy-efficient façade systems, and energy management and optimisation solutions for buildings. As a result, building automation is also becoming increasingly important.
At the same time, M&A activity is being influenced by growing cross-sector considerations, as expected. Certain assets are increasingly being assessed on their relevance to either defence-related or data centre-related applications, adding a further strategic dimension to acquisition strategies.
Industrial Manufacturing
Despite a decline in H1 2026 – driven by the current geopolitical environment and following significant dealmaking in previous years – we expect M&A in the German Industrial Manufacturing sub-sector to remain strong for the remainder of the year. In contrast to 2025, strategic buyers took the lead in H1 2026, with transactions increasingly focused on acquiring know-how, technological capabilities and skilled employees to strengthen competitive positioning.
Infrastructure assets continue to be a key focus for investment, with strong interest in energy transition-related assets, such as those for electrification, grid expansion and related industrial equipment. This is exemplified by Bregal Unternehmerkapital’s acquisition of a majority stake in A. Eberle GmbH & Co. KG, a provider of instrumentation and control systems for applications in electrical energy infrastructure. In general, manufacturers of measuring instruments and analytical equipment are attracting significant investor interest. This reflects both ongoing market consolidation and the increasing importance of precision, data and monitoring capabilities across mission-critical applications.
As anticipated, and as highlighted in other sub-sectors above, the growing strategic importance of defence is also influencing M&A in Industrial Manufacturing, with some industrial assets increasingly being evaluated for their potential in defence-related applications. This is illustrated by Salzgitter AG’s strategic acquisition of Thyrolf & Uhle GmbH: this has expanded Salzgitter’s capabilities, as Thyrolf & Uhle holds the necessary certifications and qualifications for machining parts made from armour steels, enabling Salzgitter to better serve the growing defence market.
While we have not yet seen large-scale data centre-related transactions in this sub-sector, we expect them to emerge over the course of 2026.
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Mid-year M&A outlook for the German Industrials & Services sector
We expect M&A across German Industrials & Services to pick up in the second half of 2026 and remain resilient, albeit more selective than in the past. However, key risks remain – such as geopolitical tensions if the Iran war flares up again – and these could weigh on dealmaking.
We anticipate that transactions will continue to focus on acquiring critical capabilities, advanced technologies and skilled workers. At the same time, defence spending, the push for European sovereignty, infrastructure expansion – particularly in the context of the energy transition – and assets critical to digital infrastructure, such as data centres, are expected to remain key areas for investment, reinforcing the trend of increasing cross-sector convergence in I&S.
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