Why 2026 is shaping up to be the year of carve-outs and buy-and-build and what that means for W&I insurance
After three subdued years, the M&A market is finding its footing again. Deal volumes in Germany grew strongly last year, survey after survey points upwards for 2026, and private equity is sitting on record amounts of capital that has to be put to work. But anyone expecting a return of the mega-deal era will be looking in the wrong place. The recovery we are seeing is of a different kind: smaller, more surgical, more structural. Its two defining movements point in opposite directions but belonging together. Companies are taking themselves apart, and investors are putting companies together.
The year of taking things apart
Start with the disassembly. Corporates across Europe are reviewing their portfolios with unusual honesty and asking a simple question: which parts of this group still belong here? The answer, increasingly often, is a carve-out and the sale or separation of a business unit that no longer fits the core. Recent market research suggests 2026 may well become the “year of the carve-out”: around seven out of ten private equity investors say they are open to or actively working on such transactions, and more than half already have concrete plans. The motives are strategic rather than distressed. Sellers want sharper organisations, a higher valuation for what remains, and capital for the transformations driven by digital, energy, AI they can no longer postpone.
For buyers, carve-outs are attractive for the same reason they are demanding: a business unit inside a group is not yet a company. It shares IT systems, employees, contracts, real estate and often its entire accounting with its parent. Someone has to draw the line where the target ends and the rest of the group begins. Every one of those lines is a potential risk.
The quiet power of putting things together
The second movement runs in theopposite direction. Instead of one large acquisition, investors increasingly build value through many small ones: a platform company acquires competitor after competitor, dental practice after dental practice, IT service provider after IT service provider. This buy-and-build approach has quietly become the dominant mode of private equity investing – smaller strategic add-on acquisitions now account for well over half of all European PE transactions.
In the German-speaking market, this wave has a powerful ally: demography. Hundreds of thousands of owner-managed businesses are approaching a succession event in the coming years, many of them without a successor in the family. For a well-run platform, every one of these businesses is a potential add-on; for many owners, the sale to a consolidator is the most realistic route to securing their life’s work. The succession wave and the buy-and-build model as two structural trends are feeding each other.
Complexity has moved: From size to structure
Here is the observation that ties both movements together: the difficulty of a transaction is no longer a function of its size. A EUR 150 million carve-out can be more complex than a EUR 1.5 billion share deal. A EUR 15 million add-on can raise questions a large-cap process never sees.
In a carve-out, the target often has no standalone financial history. Its accounts are combined or carved out of group reporting, based on allocations and assumptions rather than on an audited standalone past. Transitional service agreements keep the business dependent on its former parent for months or years. Key contracts, permits and employees have to be moved across the perimeter or turn out, at the last moment, to sit on the wrong side of it. In a buy-and-build add-on, the challenges are different but just as real: sellers who have never been through an M&A process, limited documentation, valuation expectations anchored in emotion rather than EBITDA, and little appetite for post-closing liability. The complexity has not disappeared from the market. It has moved from size to structure.
What this means for W&I insurance
For W&I insurance, this is not a threat but a homecoming. The product exists precisely to make transactions executable where risk allocation between the parties is difficult. Both carve-outs and succession-driven add-ons are exactly such transactions.
In carve-outs, the centre of gravity of underwriting shifts towards the financial statements. Warranties on combined or carve-out accounts cannot simply mirror the standard wording written for audited standalone financials; they have to reflect what these numbers actually are and how they were prepared. The perimeter itself becomes an underwriting topic: are the assets, contracts and people that make up the business really inside the deal? Where a corporate seller cannot or will not give meaningful warranties, synthetic elements in the policy can bridge the gap. None of this is exotic but it requires an underwriter who engages with the structure of the transaction rather than processing it against a large-cap template.
In buy-and-build, the opportunity lies in repetition. A platform that acquires ten businesses a year does not need ten bespoke insurance processes; it needs a repeatable one. Standardised underwriting process, policies calibrated to smaller deal sizes, and a consistent approach across an entire acquisition programme turn W&I from a one-off transaction cost into part of the platform’s infrastructure. For the selling owner – often giving warranties for the first time in their life – the insurance does something valuable beyond risk transfer: it allows a clean exit without years of personal exposure hanging over their retirement.
Looking ahead
W&I insurance has always followed where value and risk sit in a transaction. For years, that meant following deals that grew bigger. In 2026, it means following deals that grow more structured: units being separated from groups, and companies being assembled from many small parts. Both movements will define the mid-market in the German-speaking region. Our job as underwriters is not to make these transactions simple. It is to make them insurable, and by making them insurable, to make them happen.
