2025 was a year full of changes – not exclusively positive ones. Political isolation and increasing tendencies toward decoupling shaped the world and, therefore, transaction activity. A central example was U.S. tariff policy – the impact of the political framework agreement concluded in this context on transaction activity in 2025/2026 is outlined below under (1).

At the intersection between international and national regulation stands, by way of example, the EU Data Act; under (2), we highlight key aspects and examine its implications for contract drafting and due diligence in M&A transactions.

As employee retention becomes increasingly important in turbulent times, the article concludes under (3) with practical guidance on structuring employee participation programs alongside the “classic” ESOP/VSOP models, seeking to avoid known risks.

1. U.S.–EU Tariffs: Impact on Transatlantic and Global M&A Activity in 2026

1.1 Introduction

For transatlantic and EU cross-border M&A transactions, 2025 was a turbulent year. Although global deal volume reached its second-strongest year at USD 4.5 trillion[1], U.S.-driven tariff volatility led to relatively subdued transatlantic deal activity: processes did not materialize, were terminated early, or progressed significantly more slowly than usual, particularly in tariff-exposed sectors such as automotive, steel, and aluminum.

1.2 Brief Retrospective

2025 was characterized by broad-based U.S. tariff measures, in some cases announced at short notice, and resulting uncertainty regarding their scope and level. On April 9, 2025, the U.S. government introduced a minimum tariff of 20% on EU goods imported into the United States. Higher tariffs were imposed on certain categories (e.g. 50% on aluminum and steel; 27.5% on cars and car parts).

On July 27, 2025, the EU and the U.S. concluded a political framework agreement providing for a base tariff rate of 15% on most EU goods (including cars and car parts, EU pharmaceuticals, microchips, and timber), while maintaining a 50% tariff on EU aluminum and steel. Although the agreement fell short of EU market participants’ expectations, it should be noted positively that it created interim predictability for the valuation of target companies with transatlantic operations. Below, we outline the significance and consequences of this agreement for global, particularly transatlantic, M&A activity.

1.3 General Impact on M&A Activity in 2026 – Why 2026 Appears More “Deal-Friendly” than 2025

An increase in deal activity was already noticeable in Q4/2025. In addition to other factors – such as improved financing conditions (including declining U.S. key interest rates), private-equity-driven liquidity and exit pressure (particularly carve-outs), and favorable FX effects – the U.S.–EU trade agreement likely contributed by providing greater pricing certainty for cross-border transactions. As a result, more reliable company valuations with narrower ranges can again be observed in M&A transactions (e.g., less uncertainty regarding cash flows, lower risk discounts/discounts in EBITDA multiples), more precise purchase price adjustment mechanisms, and more robust fairness opinions in large carve-outs on the buy-side, sell-side, and banking side. Especially in tariff-exposed sectors, this increased predictability can enhance deal probability by allowing prices, costs, and demand to be reflected more reliably and thereby enabling more sustainable cash flow assumptions. We may therefore be cautiously optimistic that, among other factors, a stable tariff ceiling will increase deal activity in 2026. A September 2025 survey by the American Chamber of Commerce among its EU members already indicated declining pessimism regarding transatlantic relations following the July 2025 tariff agreement (from 89% in January to 46% in September).[2]

Naturally, the tariff agreement does not meet everyone’s expectations. In particular, it failed in reducing the 50% tariff on steel and aluminum. For transactions involving companies with transatlantic business, transaction-specific due diligence remains crucial to translate remaining tariff volatility into measurable impacts on supply chains and sales opportunities. The ongoing challenge will be to address these findings through transaction structuring solutions (e.g., joint ventures, earn-outs, or purchase price adjustments). While such solutions do not eliminate tariff volatility, they can make it contractually manageable by appropriately allocating risk between buyer and seller or among joint venture partners.

1.4 Sector-Specific Outlook for Deal-Activity in 2026

1.4.1 Aluminum and Steel Sector

 The 50% tariff on EU steel and aluminum acted in 2025 as a drag on demand and margins for EU steel and aluminum exports to the United States, as well as for value chains with steel-intensive components – thereby also weighing on M&A transactions in this segment. At present, no change to this tariff rate is in sight.

1.4.2 Automotive Sector

In the automotive sector, German automobile exports to the U.S. declined by 14% in the first three quarters of 2025. Transactions addressed these uncertainties, for example, through purchase price adjustments such as earn-out clauses. For 2026, the fixed 15% tariff provides greater predictability and certainty (fewer valuation gaps and less “wait and see”) for automotive transactions; however, it remains to be seen how the market will react to the still elevated tariff level in 2026.

1.5 Conclusion

For 2026, there are strong indications of a tangible recovery in transatlantic M&A activity, not least because of the provisions agreed in the tariff agreement provided that market participants regard these as reliable, which may be in doubt in light of the recent tariff announcements made in the context of the Greenland discussion. If, however, the agreement ultimately proves to be stable, company valuations are likely to become more robust and dependable, acquisition financing easier to structure, and M&A processes that were put “on hold” in 2025 could be resumed - particularly with respect to EU target companies with significant exposure to the U.S. sales market (industrial, automotive, consumer goods). At the same time, tariffs remain comparatively high in 2026, especially for steel and aluminum. Accordingly, we will continue to see more of the transaction-specific structuring solutions.

2. The Data Act and M&A Transactions: New Guardrails for Valuation, Due Diligence, and Contract Drafting

2.1 Introduction

The EU Data Act (Regulation (EU) 2023/2854), as part of the European data strategy, aims to facilitate access to and use of data generated by connected products and related digital services. A key element is the shift from de facto manufacturer data control toward user-centric access- and data-sharing rights: users should be able to retrieve product and certain service data and – at their request – transfer it to third parties.

The Data Act has largely been in effect since September 12, 2025. Certain obligations will take effect on a staggered basis, including “access by design” for new connected products starting from September 2026. This means that products must be technically designed from the outset to allow access for users and authorized third parties. The Act also facilitates switching data processing services until 2027. The Data Act is particularly relevant for companies manufacturing physical products generating large volumes of data (e.g., Industry 4.0 equipment, connected machinery, vehicles and medical devices). For M&A practice, the Data Act represents an additional area for independent review and structuring alongside data protection and IP. It is also relevant in light of potential fines ranging from EUR 50,000 up to EUR 5 million or 2% of global annual turnover.[3]

2.2 Impact on Company Valuation

For data-intensive targets, the Data Act reduces the value of exclusive data silos whose margins depend significantly on sole access to operational or usage data (e.g., after-sales services, proprietary maintenance ecosystems, data-based add-on services), as customers may transfer relevant data to competing service providers in the future. This may lead to more cautious assessment and valuation of business models. Conversely, data access rights may create value levers through process optimization, improved maintenance strategies, or new data-driven offerings.

A second valuation factor concerns costs for implementation and transition: enabling data access and portability organizationally and technically requires investments in interfaces, data portals, and data governance. For new product generations, “access by design” may affect product roadmaps and time-to-market. Regarding cloud and platform usage, the rules on “cloud switching” may facilitate the change of cloud providers and integration with the buyer’s existing infrastructure, as the Data Act obliges cloud providers to support such switching technically. In addition, switching fees will gradually be capped or phased out, thereby reducing data migration costs and making switching providers more economically attractive or providing leverage to negotiate improved contractual terms with the current cloud provider.

2.3 Due Diligence

The Data Act expands due diligence, beginning with role clarification: Is the target a data holder, user, or recipient? For data holders, the primary focus is on which product and service data is in fact “readily available,” whether it can be provided technically, how easily the target can comply with access and portability requests, and whether its security architecture is adequate. For data recipients, key considerations include their dependence on user instructions and the stability of incoming data flows.

Particular attention should be paid to whether raw/preprocessed data are clearly separated from derived, economically valuable insights (e.g., forecasts and models). Without such separation, disclosure obligations could inadvertently reveal IP, model logic, or trade secrets. Accordingly, governance and technical safeguards should be reviewed.

On a contractual level, a “fairness check” is required. Standard contracts, data licenses and usage terms, as well as supplier and customer agreements, should be reviewed to ensure that there are no impermissible restrictions on data access and transfer or for de facto access barriers imposed by fairness regimes.

2.4 Impact on Contract Drafting

Parties should agree on targeted representations and warranties relating to the technical design of the system, since these aspects are not necessarily covered by general compliance warranties. These warranties should in particular cover (i) applicability and compliance with the Data Act, (ii) the technical capability to fulfill access and portability requirements, (iii) Data Act compliance of key contracts, (iv) the absence of regulatory procedures/requests, as well as the handling of trade secrets and data classifications. Where due diligence identifies specific deficiencies, indemnities or dedicated escrow arrangements may be appropriate. It is also often advisable to include (i) specific covenants with milestones for technical implementation, (ii) reporting or audit rights, and (iii) closing conditions for particularly transaction-critical deficiencies.

In asset deals, data transfer must be structured carefully: as data are not tangible assets, data categories, formats, access rights, deletion and return obligations, and permissible residual use must be clearly regulated, while also observing the GDPR and trade secret protection regulations.

2.5 Conclusion

The Data Act adds to an increasingly dense regulatory landscape reshaping M&A parameters. Evaluating data-driven business models will require careful analysis of which data remain exclusive, which must be shared, what technical and contractual structures are required, and what compliance costs remain. Transaction practitioners, in-house counsel, and investors, should add a “Data Act check” to their agendas, alongside the AI Act, GDPR, and foreign investment control – not only to avoid fines, but to realistically assess the economic value of target companies in the data economy.

3. Cash-Based Employee Participation Programs on the Rise – Practical Experience

3.1 Introduction

Instead of traditional employee participation schemes, private-equity-backed companies increasingly rely on cash-based participation programs (“cash plans”) to retain broad employee groups below management level and involve them in economic success. The reason: cash plans are particularly convincing from a legal perspective due to their simplicity of use. A closer look at their structure highlights what fundamentally distinguishes cash plans, how they differ from traditional employee equity participation schemes, and why they are more attractive for many companies.

 3.2 From Exit to Bonus: How Participation Programs Work

Both classic participation programs and cash plans operate on the same core mechanism: upon the occurrence of a predefined exit event, a bonus pool is triggered, the size of which is determined by the value increase realized in the interim – in practice, typically 2% to 3% of the difference between the invested equity and the actual proceeds achieved after transaction and other costs. Distribution among employees is based on objective criteria (e.g., gross salary, tenure). These criteria are mentioned but not quantified in a point system to avoid suggesting a specific claim amount. No performance-based elements apply. An individual claim arises only upon the actual exit event and continued, un-terminated employment at that time. No claim exists if no value increase (1x multiple) is achieved.

3.3 Where ESOPs and VSOPs Reach Their Limits

The difference from traditional employee participation schemes, namely genuine (ESOPs) and virtual (VSOPs) plans, becomes clear when considering how the entitlement arises.

In ESOPs, employees receive options subject to capital markets or corporate law requirements. VSOPs simulate participation contractually. In particular, vesting and leaver provisions create labor law complexity. ESOPs and VSOPs regularly provide for linear or staggered vesting periods, granting employees a conditional right to the simulated participation upon reaching these milestones – a structure that entails significant labor law risks, as evidenced by the recent Federal Labor Court ruling of 19 March 2025.[4]

The Federal Labor Court held that forfeiture clauses in VSOP programs that eliminate already vested virtual options upon resignation are invalid. Vested options are considered “earned” and part of remuneration. A forfeiture through contractual clauses violates Section 307(1) sentence 1 of the German Civil Code (BGB) and the labor law principle of reciprocal obligation under Section 611a(2) BGB. This jurisprudence can also be applied to ESOPs.

3.4 Advantages of Cash Plans

Cash plans aim to avoid these issues. Participation is automatic for eligible employee groups; no contractual participation agreements, exercise declarations, or capital contributions are required. The plan is based solely on a unilateral employer commitment. Payouts are also made unilaterally through the payroll and can, for example, be replaced by equity-based substitute instruments (e.g., RSUs) in the case of an IPO.

The “vesting” of certain legal entitlements therefore does not occur; individual legal rights are not established prior to the exit. The entitlement is instead designed exclusively on a collective basis, limited to a cash pool to be allocated among eligible employees, arises only upon the exit, and is tied to an existing employment relationship at the time of the exit. This should eliminate the risk that employees could claim a “forfeiture-protected right” analogous to vested rights.

However, careful drafting is essential, as the Federal Labor Court’s (BAG) case law is very employee-friendly in this context. In particular, any impression that the program constitutes a “profit-sharing scheme” linked to individual employee performance or an employment-related remuneration should be consistently avoided.[5] Such wording could be interpreted by a labor court as evidence of a compensatory character for the cash payment, thereby increasing the risk that certain conditions or exclusion provisions of the cash plan are deemed an unreasonable disadvantage to employees and rendered invalid. To prevent this, the program should be formulated and structured in a manner that consistently avoids references to consideration, bonus, or participation in the narrow sense.

In addition to the greater legal certainty, cash plans also offer practical advantages: they are easy to administer, require no corporate-law implementation measures, and can be communicated and implemented simply both domestically and internationally. From the employees’ perspective, they are clear and understandable: a payout occurs only if the investor is successful, and the employee is still with the company at the time of the exit – a straightforward logic that consistently generates high acceptance.

3.5 Conclusion

While ESOPs and VSOPs remain relevant for retaining executives and, in the venture capital context, particularly for recruiting talent in early-stage companies due to their signaling effect, cash plans constitute an independent, cost-efficient instrument for broad employee participation below the management level. They aim to increase employee motivation and engagement without creating extensive obligations for the company. For growth-oriented mid-cap structures with a private equity background, collective, payout-based participation models are therefore increasingly becoming a central tool for employee retention – delivering significant impact at manageable cost.

[1] www.ft.com/content/46b87305-4bd7-4e64-81f9-ad6b9a9bc429

[2] https://www.politico.eu/wp-content/uploads/2025/09/25/20250926_AmCham-EU_Survey_Transatlantic-business-outlook98.pdf

[3] Based on the current cabinet draft of the implementing legislation.

[4] Az. 10 AZR 67/24

[5] See Federal Labor Court (BAG) decision, NZA 2024, 400, para. 64.