7 min read<\/p>\n
Continental is splitting into three independent entities. BASF has sold its coatings business to Carlyle for \u20ac7.7 billion. ThyssenKrupp has taken its marine subsidiary public – and plans further spin-offs. ADNOC acquired Covestro for \u20ac14.7 billion. Germany\u2019s M&A market isn\u2019t seeing a revival in 2026 – it\u2019s undergoing a structural revolution. $1.3 trillion in private equity \u201cdry powder\u201d is pressing on the market. Carve-outs are replacing traditional acquisitions. And the question at board level is no longer \u201cbuy or sell?\u201d but \u201cwhich parts of our company do we actually still own?\u201d<\/strong><\/p>\n What Continental has been doing since 2024 is more than restructuring – it\u2019s 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 \u20ac1.718 billion in 2025: \u20ac248 million for restructuring, \u20ac503 million for impairments, \u20ac91 million for carve-out costs, and \u20ac681 million for divestiture expenses.<\/p>\n This is no emergency operation. It\u2019s 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.<\/p>\n ThyssenKrupp<\/a> 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.<\/p>\n BASF has chosen perhaps the most elegant path: Its coatings business (\u20ac3.8 billion in revenue) is being acquired by Carlyle and the Qatar Investment Authority for \u20ac7.7 billion. Yet BASF retains a 40% stake. The model: carve out without fully relinquishing control. The \u20ac5.8 billion in cash proceeds strengthens the balance sheet, while the 40% stake preserves influence – and participation in future growth.<\/p>\n The PE market is the driving force behind the 2026 M&A wave. According to the Bain Global Private Equity Report<\/a>, 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n Within Germany itself, the BVK (Federal Association of Capital Companies) recorded \u20ac15.69 billion in PE\/VC investments for 2025 – a 4% increase and the highest level since 2021. PE\u2019s 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n The biggest challenges, per KPMG: operational disentanglement (52%), valuation complexity (43%), and IT\/data separation (40%). The last point hits CIOs especially hard<\/span>: 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.<\/p>\n 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.<\/p>\n 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\u2019s market – more qualified targets available than buyers competing for them.<\/p>\n The convergence of succession pressure, PE dry powder, and the urgent need for digital capabilities makes 2026 the most active year for German M&A since 2021.<\/p>\n Dr. Michael Drill, CEO Lincoln International Germany (paraphrased)<\/p>\n<\/div>\n Dr. Michael Drill, CEO of Lincoln International Germany, forecasts 20% growth in the mid-market segment compared to 2025.<\/p>\n The traditional build-vs-buy decision is shifting decisively toward \u201cbuy\u201d in 2026. Why? Building AI capabilities internally takes years. Recruiting a team of ML engineers, data scientists, and MLOps specialists costs at least \u20ac500,000 annually in Germany – and qualified talent is scarce<\/a>. Acquiring a specialized AI startup – or a data provider – can deliver equivalent capability in three months instead of three years.<\/p>\n McKinsey outlines a new \u201cAI M&A Playbook\u201d: 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.<\/p>\n For boards, this means: M&A strategy must expand to include digital acquisition targets. Not just \u201cWhich company fits our product portfolio?\u201d but also \u201cWhich data assets, algorithms, and teams are missing from our stack?\u201d<\/p>\n 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\u2019t 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.<\/p>\n Continental learned this the hard way: \u20ac1.718 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.<\/p>\n The lesson for boards: A carve-out is not a project – it\u2019s a corporate start-up. Underestimate its complexity, and you pay twice: once for the transaction, and again for remediation.<\/p>\n 1. Force a portfolio review.<\/strong> Every business unit must answer: \u201cAre we the best owner of this unit?\u201d If a PE fund could run it better – delivering sharper focus, greater investment readiness, and more operational freedom – then selling isn\u2019t a failure. It\u2019s strategy.<\/p>\n 2. Assess IT separability.<\/strong> 40% of carve-out challenges are IT-driven. CIOs should evaluate \u201ccarve-out readiness\u201d for every business unit: How long would SAP separation take? Which shared services would need replication? What\u2019s the cost of a standalone IT stack?<\/p>\n 3. Build an AI M&A pipeline.<\/strong> If you\u2019ll 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.<\/p>\n 4. Proactively engage with PE.<\/strong> 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\u2019re not a fringe phenomenon – they\u2019re mainstream.<\/p>\n Germany\u2019s 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<\/a> through internal strength.<\/p>\n A carve-out is the separation of a business unit from a parent company – either via sale to a new owner or as a spin-off to the stock exchange. It dominates in 2026 because corporates seek portfolio focus (AI demands capital), PE funds specifically target such operationally independent units, and valuations for focused companies exceed those for diversified conglomerates.<\/p>\n<\/details>\n This multiple reflects risk: owner dependency, limited scalability, and often a lack of dedicated IT infrastructure. Globally, professionally managed buyout targets trade at 11.8x. The gap makes German SMEs attractive to PE funds that see professionalization itself as a primary value driver.<\/p>\n<\/details>\n 12 to 24 months – from decision to closing. IT separation alone often takes 6 to 12 months. Continental required over two years (2024-2026) for its three-way split – and recorded \u20ac1.7 billion in special items. Underestimating timeline complexity is the most frequent error.<\/p>\n<\/details>\n The answer depends on portfolio strategy. Buy – if critical digital capabilities can\u2019t be built internally fast enough. Sell – if a business unit would grow more strongly under different ownership. The BASF model (sell, but retain 40%) shows the choice need not be binary.<\/p>\n<\/details>\n PE funds under pressure to exit holdings create opportunities for strategic buyers. STADA (\u20ac10 billion, sold by Bain\/Cinven to CapVest) is one example. Corporates that proactively screen PE exit targets gain access to well-professionalized businesses at rational valuations.<\/p>\n<\/details>\n CIO Reboot: \u20ac245 Billion – and Where the Money Is Going<\/a> (Digital Chiefs)<\/p>\n Board Governance: Digital Competence in the Supervisory Board<\/span> (Digital Chiefs)<\/p>\n Mid-Market M&A: Why 2026 Is the Decisive Year<\/a> (MyBusinessFuture)<\/p>\nTL;DR<\/h2>\n
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The Great Unbundling: A New M&A Paradigm<\/strong><\/h2>\n
$1.3 Trillion Seeking a Target<\/strong><\/h2>\n
Carve-outs: The Dominant M&A Pattern in 2026<\/strong><\/h2>\n
The Valuation Gap: Why German Targets Are Gaining Appeal<\/strong><\/h2>\n
Build vs. Buy: How AI Is Reshaping the Calculus<\/strong><\/h2>\n
The Counterpoint: Why So Many Deals Fail<\/strong><\/h2>\n
What Boards Should Do in 2026<\/strong><\/h2>\n
Conclusion<\/strong><\/h2>\n
Frequently Asked Questions<\/strong><\/h2>\n
What is a carve-out – and why is it the dominant M&A pattern?<\/strong><\/summary>\n
Why are German mid-market firms valued so low – at just 5.7x EBITDA?<\/strong><\/summary>\n
How long does a typical carve-out take?<\/strong><\/summary>\n
Should our company buy – or sell?<\/strong><\/summary>\n
What does the PE exit backlog mean for corporates?<\/strong><\/summary>\n
Further Reading<\/strong><\/h2>\n