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Continental is splitting into three independent entities. BASF has sold its coatings business to Carlyle for €7.7 billion. ThyssenKrupp has taken its marine subsidiary public – and plans further spin-offs. ADNOC acquired Covestro for €14.7 billion. Germany’s M&A market isn’t seeing a revival in 2026 – it’s undergoing a structural revolution. $1.3 trillion in private equity “dry powder” is pressing on the market. Carve-outs are replacing traditional acquisitions. And the question at board level is no longer “buy or sell?” but “which parts of our company do we actually still own?”

TL;DR

The Great Unbundling: A New M&A Paradigm

What Continental has been doing since 2024 is more than restructuring – it’s a masterclass in next-generation portfolio management. The group has split into three distinct units: Aumovio (Automotive) listed independently on the stock exchange in September 2025; ContiTech OESL was sold to Regent in February 2026; and a structured sales process for the remaining ContiTech business launched in January 2026. Special items alone totaled €1.718 billion in 2025: €248 million for restructuring, €503 million for impairments, €91 million for carve-out costs, and €681 million for divestiture expenses.

This is no emergency operation. It’s a strategic decision: A diversified conglomerate no longer works when its individual units face divergent capital requirements, market cycles, and growth rates. The sum of the parts is worth more than the whole – but only if those parts can operate autonomously.

ThyssenKrupp is following the same playbook: Its marine subsidiary TKMS went public in October 2025, with ThyssenKrupp retaining a 51% stake. A performance review for the Materials Services division is scheduled for end-March 2026 – a potential spin-off with an IPO this autumn remains an option, though not yet decided. The steel division – the former heart of the group – continues searching for a solution; the proposed sale to Jindal Steel is increasingly uncertain.

BASF has chosen perhaps the most elegant path: Its coatings business (€3.8 billion in revenue) is being acquired by Carlyle and the Qatar Investment Authority for €7.7 billion. Yet BASF retains a 40% stake. The model: carve out without fully relinquishing control. The €5.8 billion in cash proceeds strengthens the balance sheet, while the 40% stake preserves influence – and participation in future growth.

$1.3 Trillion Seeking a Target

The PE market is the driving force behind the 2026 M&A wave. According to the Bain Global Private Equity Report, buyout funds hold approximately $1.3 trillion in dry powder – uninvested capital that must be deployed. 40% of that amount is older than two years (a record), and 24% is even older than four years. Limited Partners (LPs) – the investors who provided the capital – are demanding returns.

This pressure acts in two directions: PE funds must invest (in new deals) and simultaneously execute exits (selling existing holdings). The investment-to-exit ratio improved to 2:1 in 2025, up from nearly 3:1 in prior years. Yet the backlog of pending exits remains enormous.

For German boards, this means three things: First, PE funds are knocking more frequently at the door with acquisition offers for corporate divisions. According to KPMG, 55% of PE dealmakers are considering buying carved-out assets. Second, German companies held by PE firms (STADA, Otto Bock, Springer) face ownership changes – creating both strategic opportunities and risks. Third, valuations are becoming more ambitious: The global median buyout multiple stands at 11.8x EBITDA – an all-time high.

Within Germany itself, the BVK (Federal Association of Capital Companies) recorded €15.69 billion in PE/VC investments for 2025 – a 4% increase and the highest level since 2021. PE’s share of German M&A transactions stands at around 48% in 2026. In nearly every second deal, a financial investor is involved on at least one side.

Carve-outs: The Dominant M&A Pattern in 2026

According to a KPMG survey, 57% of corporates are actively pursuing portfolio rationalization and carve-outs. 71% of PE firms are open to acquiring carve-outs. 51% of corporates expect rising carve-out activity over the next 12 to 24 months.

Why is this trend peaking now? Three drivers converge. First: Post-COVID clarity. The pandemic revealed which business units are resilient under stress – and which are not. Boards that hesitated between 2021 and 2022 are now acting decisively. Second: The AI imperative. Companies investing in AI need capital. Carve-outs generate cash from business units outside the AI core. Third: PE pressure. Financial investors specifically seek such units – profitable, operationally autonomous, and with a clear value proposition.

The biggest challenges, per KPMG: operational disentanglement (52%), valuation complexity (43%), and IT/data separation (40%). The last point hits CIOs especially hard: When two business units have shared the same SAP system for two decades, separation becomes a multi-month, multi-million-euro project. Without a plan, you fail due diligence.

The Valuation Gap: Why German Targets Are Gaining Appeal

The valuation landscape reveals a widening chasm. German mid-market companies trade, on average, at 5.7x EBITDA. Global buyout multiples have hit an all-time high of 11.8x. For international buyers, German targets thus represent relative value: profitable, well-run, and modestly priced by international standards.

A succession crisis amplifies the effect: According to KfW, 569,000 mid-sized German firms plan to shut down operations by 2029. For the first time, the number of owners intending to close their businesses now exceeds those seeking successors. For strategic buyers and PE funds, this is a buyer’s market – more qualified targets available than buyers competing for them.

Dr. Michael Drill, CEO of Lincoln International Germany, forecasts 20% growth in the mid-market segment compared to 2025.

Build vs. Buy: How AI Is Reshaping the Calculus

The traditional build-vs-buy decision is shifting decisively toward “buy” in 2026. Why? Building AI capabilities internally takes years. Recruiting a team of ML engineers, data scientists, and MLOps specialists costs at least €500,000 annually in Germany – and qualified talent is scarce. Acquiring a specialized AI startup – or a data provider – can deliver equivalent capability in three months instead of three years.

McKinsey outlines a new “AI M&A Playbook”: In tech M&A this year, scale economies matter less than access to talent, proprietary data, and model IP. Alternative structures are gaining traction: minority stakes, ecosystem partnerships, and acqui-hires (acquiring a company primarily for its people) allow firms to acquire AI capabilities without executing a full-blown M&A transaction.

For boards, this means: M&A strategy must expand to include digital acquisition targets. Not just “Which company fits our product portfolio?” but also “Which data assets, algorithms, and teams are missing from our stack?”

The Counterpoint: Why So Many Deals Fail

According to industry estimates, a large share of M&A transactions miss their original value-creation goals. The most common reasons: cultural misfit (key employees resign post-close), IT integration failure (systems simply won’t talk to each other), and overpayment (the buyer paid too much). With carve-outs, an additional risk emerges: disentanglement failure – if the spun-off unit cannot operate independently, its value erodes faster than due diligence predicted.

Continental learned this the hard way: €1.718 billion in special items in one year illustrates the cost of a triple-split. BASF Coatings must now prove it can innovate just as effectively outside the BASF ecosystem. And ThyssenKrupp Steel remains without a viable solution after the Jindal deal stalled.

The lesson for boards: A carve-out is not a project – it’s a corporate start-up. Underestimate its complexity, and you pay twice: once for the transaction, and again for remediation.

What Boards Should Do in 2026

1. Force a portfolio review. Every business unit must answer: “Are we the best owner of this unit?” If a PE fund could run it better – delivering sharper focus, greater investment readiness, and more operational freedom – then selling isn’t a failure. It’s strategy.

2. Assess IT separability. 40% of carve-out challenges are IT-driven. CIOs should evaluate “carve-out readiness” for every business unit: How long would SAP separation take? Which shared services would need replication? What’s the cost of a standalone IT stack?

3. Build an AI M&A pipeline. If you’ll need AI capabilities in two years, you must be screening targets today. That demands a new scouting process – one that evaluates not just revenue and EBITDA, but data assets, team quality, and technological differentiation.

4. Proactively engage with PE. Whether as buyer (of PE-owned targets), seller (of carve-out candidates), or partner (via minority stakes): Boards that view PE funds solely as hostile bidders miss strategic opportunities. PE investors are involved in 48% of all German M&A deals. They’re not a fringe phenomenon – they’re mainstream.

Conclusion

Germany’s M&A market is undergoing a structural revolution in 2026. Continental, BASF, and ThyssenKrupp show that the future belongs to focused enterprises – not conglomerates. $1.3 trillion in PE dry powder is accelerating the transformation. Carve-outs have replaced traditional acquisitions as the dominant M&A pattern. And the valuation gap between German mid-market firms (5.7x) and global buyouts (11.8x) makes German targets internationally attractive. For boards, this is a unique opportunity: Cleaning up your portfolio now finances your reboot through internal strength.

Frequently Asked Questions

Further Reading

CIO Reboot: €245 Billion – and Where the Money Is Going (Digital Chiefs)

Board Governance: Digital Competence in the Supervisory Board (Digital Chiefs)

Mid-Market M&A: Why 2026 Is the Decisive Year (MyBusinessFuture)

Reboot Germany: €735 Billion in Investments (MyBusinessFuture)

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