Sagard Private Equity Insights: Why Germany is becoming a more attractive market for private equity

Germany is under economic pressure. High energy costs, a weaker export environment, bureaucracy, high tax and labour costs, the need for investment in infrastructure, and demographic change are shaping the debate about Germany as a business location. From Sagard’s perspective, however, this development does not argue against the German private equity market. Rather, the growing complexity of the market environment can create both new investment opportunities and additional risks – provided that investors have a long-term investment horizon and a disciplined selection process. This is the conclusion reached by Kim Pochon, Head of Primary Investments at Sagard Private Equity, in the latest edition of Private Equity Insights. In his brief analysis, he describes Germany as still being one of Europe’s largest and most diverse private equity markets, despite the current challenges. He argues that it is not so much the short-term economic outlook that is decisive, but rather the location’s long-term structural strengths – ranging from a broad landscape of small and medium-sized enterprises and technological expertise to an established private equity ecosystem.

Despite the current macroeconomic debate, Germany continues to boast one of the most attractive markets for privately held companies in Europe. The Mittelstand comprises numerous world-leading companies characterised by outstanding engineering expertise, strong industrial clusters such as Silicon Saxony and the Isar Valley, and a well-educated workforce.

Added to this is a large consumer market at the heart of the European single market, as well as a stable legal and institutional framework. From the perspective of long-term investors, these factors continue to rank among Germany’s key locational advantages. Furthermore, the Federal Government’s infrastructure agenda could provide a positive impetus for productivity, logistics, digitalisation and industrial renewal.

With more than 500 active general partners, over 6,500 private equity-backed companies and around 1.6 million employees, Germany boasts one of the most extensive private equity ecosystems in Europe. The portfolio companies together generate an annual turnover of around 320 billion euros.

The market offers investment opportunities across the entire spectrum of the asset class – from buyout and growth to venture capital strategies. At the same time, the DACH region is characterised by a diverse fund landscape that encompasses established managers as well as specialist firms and up-and-coming emerging managers.

Investment activity in the German private equity market remained relatively stable between 2018 and 2025. The exit environment, by contrast, was significantly more subdued. In our view, this could lead to pent-up exit activity once market conditions return to normal. For investors with a long-term investment horizon, the current environment may therefore present attractive opportunities to invest in high-quality funds and companies before liquidity windows open up again.

Germany is not a market characterised by a single investment style. Rather, the breadth of the fund landscape allows for diversification across different company sizes, sectors and investment strategies. At the same time, the increasingly challenging economic environment is forcing many companies to become more professional, drive forward their digitalisation, strengthen their international competitiveness and boost their productivity. Private equity can actively support this transformation process.

There is no denying the challenges currently facing Germany as a business location. At the same time, the country’s structural strengths remain intact. From Sagard’s perspective, there are therefore many reasons why long-term investors should not judge Germany solely on the basis of current economic trends, but should instead view it as a strategic allocation within European private equity portfolios.