Germany: Regional 2024 Doing Business In Update (EMEA)

Published on May 16, 2024

2024 Germany Regional Update

Firm Name: CMS Germany
Authors: Patrick Lühr, Tobias Kilian

1. How is the political environment impacting business in or with your country?

Last year was challenging for the M&A and real estate markets, with inflationary headwinds, rising interest rates, slow growth and geopolitical conflicts creating a lot of uncertainty in the market. However, M&A deal flow picked up in the last quarter of 2023.

Germany is undergoing many changes, especially in its energy production. After deciding to phase out nuclear power, Germany initially relied on cheap gas from Russia. Now that this energy source is no longer available, accelerating the use of renewable energy is on the political agenda. The aim is to expand wind farms, solar parks and grids, but also to improve the energy efficiency of buildings and transport.

One sector undergoing a lot of change is the automotive sector, where we see a lot of projects related to the production of electric cars and batteries.

Germany has also increased its efforts to digitize public healthcare and public administration, which could create opportunities for investors in the coming years.

As a full-service law firm, we benefit from the many changes on the agenda.

2. Which countries have you previously collaborated with and do you see potential for future collaboration with on cross-border matters within the region?

We see many opportunities for cross-border deals, both inbound and outbound. Many foreign financial investors are investing in the German market, and German groups are expanding abroad. In the PE market, we see that mid-cap funds have become larger and are expanding their geographic scope. In many cases, buy-and-build strategies are being pursued, which is also increasing cross-border deal activity.

The main collaboration countries in 2023 H2 were the DACH and Benelux regions, Denmark, Finland, South Korea, Israel, and Japan.

3. What legislation has recently changed or is changing that a potential international client should be aware of?

Recent changes in German law (non-EU law-based) include reform of civil law partnership laws, a higher minimum wage in all sectors (now EUR 12.41/h), and—only mentioned here as this was probably the change most discussed—the legalization of possession, cultivation, and acquisition of cannabis.

The changes with the biggest impact are probably new levels applying under the Supply Chain Duty of Care Act (LkSG), which has been in force since January 2023. The LkSG obliges companies to ensure compliance withminimum legal standards regarding working conditions and suppliers' safety. Since January 1, 2024, the LkSG has applied to companies with 1,000 (previously 3000) or more employees in Germany. The affected companies must demonstrate appropriate and documented risk management and conduct regular risk analyses.

The EU Corporate Sustainability Due Diligence Directive (CSDDD) passed on April 24 will result in even stricter requirements but a level playing field. Companies in all other EU member states and companies based outside the EU will soon have to fulfill these due diligence obligations.