M&A Update 2026

The M&A market presents a mixed picture following the first quarter of 2026. Interest in transactions remains strong. At the same time, processes in many cases remain selective and are significantly more influenced by external factors than in earlier market phases. Geopolitical uncertainties, macroeconomic conditions, financing costs, and an overall heightened perception of risk influence not only investment decisions and valuation issues but increasingly also the specific structuring of transactions.

In practice, this means above all that preparation, process discipline, and robust contract drafting are becoming increasingly important. Well-prepared, strategically compelling, and operationally resilient targets continue to attract interest. Where the equity case is less clear or the risk profile shows increased uncertainty, however, processes become more challenging. The market environment and the contractual architecture can therefore be viewed less and less in isolation from one another.

One topic that now resonates in nearly every transaction discussion is the use of legal tech and AI in the M&A process. Practical application has now become significantly more realistic. In our view, the phase of blanket expectations for a single all-purpose tool that fundamentally replaces the entire legal process is over. Instead, it is increasingly evident that the added value of AI lies primarily in areas where clearly defined subtasks can be handled more quickly, in a more structured manner, or with greater accessibility.

AI-powered tools are used in particular for initial indicative research, for knowledge management purposes, for the creation and consolidation of due diligence summaries, and occasionally also in drafting. It is precisely in these areas that AI can help process information more quickly and structure initial drafts more efficiently. At the same time, clear limitations remain. Issues of confidentiality, data protection, and professional ethics remain just as relevant as the liability dimension. Furthermore, many solutions are not yet seamlessly integrated into existing data room, document management, or other workflow systems. In practice, this paints a pragmatic picture: AI is no substitute for legal analysis and negotiation experience, but it can already create tangible added value today in clearly defined sub-tasks. 

A second area where transaction practice is currently undergoing visible change is the market for Warranty and Indemnity Insurance. From a practical perspective, it can be observed that W&I solutions are in many cases significantly more attractive than they were just a few years ago. This applies to the cost structure as well as the market breadth and the potential scope of coverage. For deal practice, this opens up additional leeway to distribute risks more flexibly and conduct negotiations more efficiently.

In suitable cases, W&I insurance is no longer viewed merely as a supplementary security instrument. It can actively contribute to optimizing deal structures or to even enable a transaction in the first place. If certain liability issues can be addressed through insurance, this can defuse negotiations, limit seller liability, and make transactions more feasible overall. At the same time, W&I remains a tool that must fit into the overall structuring of the specific deal. The risk profile of the transaction, the quality of due diligence, the contractual architecture, and the interests of the parties continue to be decisive factors. For this very reason, it is advisable not to consider W&I in isolation, but rather to incorporate it early on as part of the structuring process. 

Management and employee participation through hurdle or growth shares may also gain practical relevance. These models are primarily used in the private equity sector and aim to give management or key personnel a stake in future value appreciation without fully opening up the existing enterprise value. The basic principle is that economic participation only begins above a defined threshold.

From a structuring perspective, this offers significant practical appeal. The model enables genuine equity participation under corporate law without management participating economically in historically accumulated value. This can be attractive to investors because economic participation typically only begins once a certain value threshold is reached or exceeded. For management, genuine corporate ownership can create a stronger entrepreneurial connection than purely contractual models.

At the same time, the model is not the best solution in every scenario. Compared to virtual equity programs, the implementation effort is typically higher. In the case of GmbH structures, corporate law implementation requirements, capital measures if necessary, and notarial steps are added. Furthermore, the model is not equally suitable for every exit strategy. This is precisely why it is crucial to determine whether the specific objective is geared more toward targeted incentives for key personnel or toward a broader-based equity program. 

Finally, another topic covered in our webcast concerned the current case law on call options in management equity cases. We have already published a separate blog post on this topic: “Federal Court of Justice on Call Options in Management Equity Cases.” In it, we discuss the Federal Court of Justice’s decision of February 10, 2026 – II ZR 71/24 – and its implications for structuring management equity arrangements in greater detail. The post complements the developments outlined here with a corporate law perspective on current precautionary trends.

In our view, the first quarter of 2026 thus paints a clear picture: The M&A market remains in flux, but the quality of structuring continues to gain importance. Market conditions, risk perception, and contract drafting are more closely intertwined than in earlier phases. In practice, this means that, in addition to focusing on transaction volumes and market sentiments, instruments that enable deals to be prepared more efficiently, risks to be distributed more effectively, and management incentives to be structured in a robust manner are gaining particular relevance. It is precisely at this intersection of market dynamics and structuring that, in our view, key developments in M&A practice will unfold as 2026 progresses.

If you are interested in our activities and advisory services in the M&A sector, please feel free to contact your Country Desk representative.