M&A Market Momentum

M&A in Q2 2026: Between Energy Shock and Selective Optimism

How is the German M&A market evolving amid rising energy uncertainty, geopolitical tensions, and gradually improving financing conditions? In our latest edition of the Taylor Wessing M&A Market Momentum, we take a closer look at the key dynamics shaping Q2 2026 – from the growing role of private credit and the resurgence of carve-outs to increasingly sophisticated deal structures bridging valuation gaps.

Which sectors remain resilient? Where are new opportunities emerging – and which risks should decision-makers be prioritising now?

Our new quarterly analysis provides the answers – concise, data-driven, and focused on what M&A leaders should know today to stay ahead.

Energy Shock Meets Selective Risk Appetite

The German M&A market is set for a measured, mid-market-led pickup in Q2 2026, with technology, industrial automation, and selected healthcare niches at the forefront. Data through 2023–2025 highlighted the relative resilience of technology, the dominance of add-ons and carve-outs, and the growing role of private credit—patterns that still anchor the base case.

The conflict in Iran heightens volatility in oil and gas prices and indirectly in European power costs, tightening underwriting for energy-intensive assets and lengthening diligence around hedging and supply chains. The drag is most pronounced in Industrials; Technology and asset-light Healthcare remain comparatively insulated.

Financing is incrementally more supportive, but lenders remain selective; unitranche/private credit solutions provide speed and certainty for sponsor deals. Regulatory filings (FCO, EU FDI screening, Foreign Subsidies Regulation) continue to be a critical-path variable.

We expect more pre-emptive bids, conservative valuation frameworks, increased use of MAC-clauses and continued use of earn-outs and deferred consideration to bridge pricing gaps.

Focus Areas (Automotive and Defence)

Automotive: M&A in the automotive sector will be driven less by scale and more by strategic portfolio realignment amid regulatory, technological, and geopolitical pressures. OEMs and suppliers are expected to divest non-core and legacy assets to fund electrification, software, and AI, while intense cost pressure across the value chain accelerates consolidation—particularly in lower supplier tiers — creating both opportunities and heightened risks for transactions. This environment is likely to generate a strong pipeline of carve-outs and distressed deals, attracting private equity and strategic investors focused on operationally separable businesses with robust cash flows. At the same time, increasing emphasis on data, IP, and regulatory compliance is reshaping due diligence, while successful transactions will depend on managing separation complexity, navigating consolidation dynamics, and deploying flexible deal structures. Overall, 2026 will favor focused, resilient, and regulatory-aligned M&A strategies over pure scale expansion.

Defence: Europe is entering a new defence-industrial era. Geopolitical shocks have triggered a historic rearmament cycle, backed by initiatives like ReArm Europe and a clear push for strategic autonomy. At the same time, AI, autonomy, cyber and quantum technologies are reshaping the sector, accelerating procurement and scaling capacity.

Despite regulatory and structural challenges, Europe is moving toward a more integrated, innovation-driven ecosystem. Surging investment shows defence tech is now a strategic priority for both governments and private capital. Current investor focus is on later-stage AI-enabled systems, C2 software, autonomy, and counter-UAS — with near-term funding likely to concentrate on low-cost, scalable effectors such as autonomous drones and missiles, driven by lessons from Ukraine and the Middle East.

What Changes from Q1 to Q2 2026

Volumes

Slight increase, driven by tech/software, cyber, industrial automation, and energy transition assets; healthcare stable to slightly higher.

Values

Concentration in the mid-market; megadeals remain selective.

Pricing

Modest relief from lower rate volatility, counterbalanced by energy risk premia in exposed sectors.

Execution

Broader adoption of bilateral/pre-emptive approaches and dual-track positioning where equity stories are credible.

Private Wealth: There is a noticeable uptick in activity among privately held or family-controlled businesses. On the buyer side, the structurally strong equity base is helping to facilitate strategic add-ons. At the same time, we continue to see many sales of family businesses driven by a lack of succession within the family.

Sector Outlooks

1. Technology

Technology remains a relative outperformer with active sponsor and strategic demand for software and IT services.

Q2 2026 forecast:

Volume: Up modestly quarter-on-quarter; robust pipelines in vertical software (industrial, healthcare), cybersecurity/managed detection, cloud migration, and applied AI/ML.
Value: Mid-market-weighted; premium processes for profitable or near-breakeven assets with sticky ARR and low churn.
Energy lens: Limited first-order exposure; heightened focus on data-center energy efficiency, cloud cost resilience, and vendor concentration risks.
Deal types: Corporate carve-outs of non-core software units; sponsor buy-and-build; minority growth rounds with liquidation preferences/ratchets for earlier-stage assets.
Key diligence: Net revenue retention, pricing power, IP/data provenance (especially for AI), and cybersecurity posture.

2. Life Sciences & Healthcare

Healthcare M&A is holding steady, with medtech, diagnostics, outsourced pharma services, and healthcare platforms continuing to show stability, as investors focus on scalable buy-and-build opportunities while remaining disciplined on capital deployment.

Medtech niches and outsourced services (CRDMO/CDMO, diagnostics) remain comparatively resilient, with caution around provider assets amid reimbursement pressures.

Q2 2026 forecast:

Volume: Stable to slightly higher; concentration in medtech components, diagnostics, and contract services.
Value: Mixed; best-in-class regulatory footprints and aftermarket stickiness command higher multiples.
Energy lens: Generally moderate exposure, but sterilization, cold-chain, and energy-intensive processes require margin proof points.
Deal types: Add-ons and cross-border bolt-ons; selective minority growth in digital health with validated payer/provider adoption.
Key diligence: Quality/regulatory systems, reimbursement durability, clinical evidence, and staffing/operational cost controls.

3. Energy

The Iran conflict injects volatility into oil/gas benchmarks and, through fuel-to-power dynamics, into European electricity prices. This simultaneously pressurizes energy-intensive industries and increases strategic value for assets enabling energy security and efficiency.

Q2 2026 forecast:

Volume: Active, with consolidation among renewable developers, battery storage platforms, grid/EV-charging infrastructure, and energy-efficiency service providers.
Value: Focused on mid-market platforms and portfolios; utility/strategic buyers and infrastructure funds remain competitive.
Risk focus: Merchant price exposure, PPA quality/tenor, curtailment risk, interconnection timelines, and supply-chain constraints for key components.
Deal types: Platform acquisitions, portfolio roll-ups, and minority stakes/joint ventures to fund pipelines; selective divestitures by conglomerates reshaping portfolios.
Key diligence: Hedging frameworks, counterparty strength, capex inflation, and regulatory stability across Bundesländer and EU frameworks.

4. Industrials

German industrials continue to retool for energy efficiency and automation. Public data highlights increased activity within the automotive and defence sector with carve-outs and joint ventures and buyer preference for assets with automation, service/aftermarket revenues, and power-electronics exposure as well as within the entire value chain of the defence sector. Automotive will in particular be shaped by portfolio realignment rather than scale. OEMs and suppliers are divesting non-core assets to fund electrification and software, while cost pressure drives consolidation - especially among lower-tier suppliers.

Q2 2026 forecast:

Volume: Gradually higher, driven by portfolio realignment and consolidation in factory automation, motion control, industrial software, and power conversion.
Value: Premiums for assets with strong aftermarket mix and energy-efficiency tailwinds; valuations more conservative for energy-intensive sub-sectors.
Energy lens: Highest sensitivity among covered sectors; underwriting to include energy stress cases, pass-through mechanics, and freight/lead-time resilience.
Deal types: Carve-outs, joint ventures for technology or market access, selective special situations where energy costs compress margins.
Key diligence: Order backlog quality, pricing power, working capital discipline, and supplier diversification.

5. Private Equity

Sponsors entered 2026 with elevated dry powder, a tilt toward add-ons, and heavy use of private credit given uneven syndicated markets—dynamics that still shape Q2 2026.

Q2 2026 forecast:

Activity: Up from Q1; add-ons dominate in software, cyber, automation, and energy-efficiency. Select new platforms where growth visibility is high.
Financing: Private credit offers speed/certainty; club unitranches and NAV-based facilities support follow-ons and liquidity.
Valuations: Disciplined overall; premium assets in tech/medtech trade well; industrials priced on cash conversion and energy resilience.
Tools: Earn-outs, deferred consideration, preferred equity, and minority structures to align on forward performance.
Exits: Secondary/tertiary sponsor deals; partial sell-downs; dual-track readiness for episodic ECM windows.

6. Venture Capital

The market indicates reset late-stage valuations, increased use of structure, and active CVC in strategic domains.

Q2 2026 forecast:

Funding: Stabilized but selective; emphasis on capital efficiency and enterprise traction, with CVC co-investment prevalent in industrial software, AI, and energy/cleantech.
M&A as exit: Strategics accelerate tuck-ins for capability acquisition (AI/cyber/industrial automation); secondaries provide liquidity for late-stage investors.
Energy lens: Volatility can slow capex-heavy deployments but pulls forward demand for software-led efficiency, grid orchestration, and flexibility solutions.
Readiness: Clean IP chains, clear unit economics, and robust data rooms to smooth diligence.

Scenarios for Q2 2026

Baseline (most likely)
Modest volume uptick versus Q1; mid-market concentration; financing accessible via private credit; energy volatility raises diligence but does not derail core processes. Automotive will create a strong pipeline of carve-outs and distressed deals, attracting both private equity and strategic buyers. Within the defence sector investments in defence tech will be a focus as this is now a strategic priority for both governments and private capital.
Upside (faster normalization)
Energy prices stabilize despite Iran-related tensions; ECM windows widen; more cross-border strategic bids and selective take-privates of under-researched small/mid caps.
Downside (persistent energy shock)
Sustained spikes in oil/gas and European power prices; industrial orders soften; lenders tighten. Processes lengthen; valuation gaps widen; add-ons and small bolt-ons dominate.

What M&A Managers can do now to prepare:

Energy diligence

Build energy cost bridges, validate hedging and PPA structures, and test pass-through and supply-chain resilience.

Financing certainty

Secure private credit indications early; maintain flexibility between unitranche and syndicated options; pre-agree W&I and covenant frameworks.

Regulatory pathing

Map FCO, EU FDI, and Foreign Subsidies milestones early; adjust long-stop dates and CPs accordingly.

Carve-out readiness

For industrial/automotive/tech divestitures, accelerate standalone planning and TSAs to secure Day-1 operations.

Structured pricing

Use earn-outs, deferred consideration, and minority instruments to reconcile valuation and energy risk.

Bottom Line

Technology’s relative strength, the preeminence of mid-market, add-on and carve-out activity, and the pivotal role of private credit—Germany’s M&A in Q2 2026 points to a selective recovery. The main swing factor is the energy price path shaped by the conflict in Iran. Buyers that pair rigorous energy-risk underwriting with financing certainty and regulatory foresight will be best positioned to convert Q2 opportunities into closed transactions.