German M&A is rising despite trade policy uncertainty

Even with global trade tensions potentially restraining economic growth in Germany and Europe, the pace of mergers and acquisitions in the region has increased, according to Wolfgang Fink, CEO of Goldman Sachs Bank Europe SE and head of Goldman Sachs in Germany and Austria. Macroeconomic uncertainty and trade disruptions may actually be serving as a catalyst, encouraging business leaders find ways to improve their go-to-market model or operational efficiency and to undertake transactions to support these goals. 

“You basically try to pull the levers that you control in this environment because you know that what you can’t control can have a massive impact,” Fink says on an episode of Goldman Sachs Exchanges with host Allison Nathan from Goldman Sachs Research. Announced merger activity in Germany has risen 22% this year compared with the same period in 2024 (as of May 27) to $44 billion, according to LSEG Data & Analytics. The overall volume of deals in Europe, Middle East, and Africa has risen 24% to $478 billion.

This could easily have become a “no-deal environment,” Fink says, in which companies would be unwilling to make big decisions because so many things that could affect them are up in the air. Instead, the M&A environment is “quite good.” Companies are buying or selling assets to address specific needs, and private equity owners are also in the market, seeking to monetize portfolio companies that have been difficult to exit profitably for several years. Amid the uncertainty, some sellers have to accept “prices they’re not absolutely content with,” Fink adds.

Deal activity is focused on mid-sized transactions rather than larger ones, Fink says. There is activity in areas such as technology, which is more insulated from the trade impacts that autos or manufacturing are experiencing. The defense and infrastructure companies that are poised to get a boost from increased government spending are doing transactions to fulfill objectives. “There aren’t endless opportunities,” Fink says, “so if one is presenting itself you better take it.”

How tariffs are affecting Europe’s economic outlook

Overall, tariffs as they stand today might cut between 0.5 and 1.0 percentage point off GDP in euro zone countries, according to economists in Goldman Sachs Research. Germany may be impacted more than other countries because of its greater dependence on manufacturing exports and more extensive trade with the US, Fink notes.

One hopes that trade relationships are simply too important to not arrive at some kind of workable solution, Fink says. The many negotiation channels being tried may well yield results, but investors have to recognize how “uncertainty permeates through the economy and in particular affects the consumer,” he says.

While German GDP growth may be slowed by tariffs, the country’s new government is embracing policies that have stirred optimism about its economy, Fink says. The coalition led by Chandellor Friedrich Merz is taking advantage of the budget flexibility that comes with the country’s low debt-to-GDP ratio to significantly boost spending on infrastructure and defense. This should create “a huge fiscal impulse over the coming years,” Fink says, adding that government spending may be leveraged with private capital in public-private partnerships.

The new German leadership also is taking steps to increase the competitiveness of the economy. These include corporate tax changes and initiatives to promote digitalization. Merz is promising to tackle a bureaucracy that is seen as holding the economy back. This is an issue “that has been plaguing the country for many years,” Fink says.

How German companies are reacting to trade tensions

Tariffs are certainly among the factors that businesses can’t control entirely, but companies are taking steps to adjust and localize their supply chains. They are asking whether they have the capacity, logistics, or skills to produce more products locally in the US, Fink says. They are watching how consumers react and looking at how pricing models may have to be adjusted.

For manufacturers that are most directly affected by tariffs, the key question is what’s still doable in a specific geography. Some automakers have huge inventories of cars sitting in ports that can’t go where they were intended and may not be saleable at a viable price. But in other instances — if engines are produced in Canada, the US, or Mexico, for example — the company may have an advantage it can exploit.

The goal in this environment is to “stay nimble and flexible,” Fink says. Companies should emphasize the ability to switch products between plants and adjust the supply chain. “That’s what you have to have in the scope of your daily judgements and decisions,” he says.

The good news is that the economic underpinning in Germany and Europe is still strong. “Stay close to your customers and make sure you’re still in front of them with the best offering ahead of your competition.” If a company keeps this focus, Fink says, the business is still out there.
 

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