German PE sector navigates Trump customs policy with a focus on Europe

Midmarket recovery intensifies despite protectionist US trade strategy - institutional investors intensify competitive pressure on established funds.

Market recovery despite geopolitical uncertainties

The German private equity midmarket is showing signs of recovery, as documented by the latest DBAG Monitor. At 5.2 out of 10 points, the deal flow rating reached its highest level since the end of 2023. This improvement comes in parallel with increased geopolitical challenges due to US trade policy under President Trump. DBAG CEO Tom Alzin interprets the development as confirmation of the strategic realignment towards digital business models and software-based solutions. Europe is benefiting from the US tariff policy, as American investors are looking for alternative markets.

Protectionism as a catalyst for capital reallocation

The Trump administration is having a fundamental impact on PE strategies: 43% of the managers surveyed report intensified due diligence inquiries regarding the impact of tariffs. Funds are responding by investing more in domestic market-oriented sectors instead of export-dependent industries. This defensive strategy is paying off: 40 percent of respondents report an increase in capital inflows into European funds. Paradoxically, the protectionist US policy is acting as a growth driver for continental PE activities.

Value creation through operational excellence instead of multiple expansion

PE strategies are increasingly focusing on fundamental value enhancement. 80 percent of managers identify cost reduction as the primary lever, while 47 percent prioritize business expansion. Buy-and-build approaches remain dominant, but reflect more realistic valuation expectations. This operational focus contrasts with historical multiple-driven returns and signals structural market changes. PE firms need to invest more in transformation skills rather than relying on financial arbitrage.

Exit restraint in the face of persistent valuation uncertainty

Despite improved sentiment, exit strategies remain conservative: 86% of managers do not see their portfolio companies as ready to sell. Only three percent rate the current exit environment more positively than in the previous year, while 23 percent note a deterioration. This reluctance reflects realistic valuation expectations and the focus on sustainable value appreciation prior to sale. PE funds deliberately extend holding periods to optimize their portfolios.

Institutional investors intensify competition

An unexpected trend is weighing on established PE players: 37% of managers identify pension funds, sovereign wealth funds and similar institutions as serious competition - more than twice as many as in the previous year (18%). This historic high since 2015 signals fundamental market shifts. DBAG board member Jannick Hunecke predicts increased selection pressure: Established players must differentiate operational excellence and governance expertise, as the market is becoming more selective but more profitable for transformation specialists.

Staff expansion despite volatile conditions

PE firms are responding to tougher competition by strengthening their teams: 33% are planning moderate staff increases compared to 23% in December 2024. This expansion despite uncertainties underlines the confidence in medium-term market opportunities. For professional services, this results in consulting opportunities in due diligence, compliance and structured portfolio optimization in an increasingly complex regulatory environment.