Welcome to Close the Deal. 2025 is a year of contrasts. On the one hand, we see a decline in major insolvencies in the second quarter. On the other hand, the strongest half-year for major insolvencies since 2018, rising mass insufficiencies, and an industry facing major global headwinds — rising energy prices, US tariffs, protectionism, supply chain risks, and geopolitical uncertainty. All of this hits German industry particularly hard and means that restructuring and distressed M&A are more relevant than ever. Today I'm talking with two guests who couldn't be closer to the pulse. Jonas Eckard, Partner at Falkensteg, one of the leading distressed M&A advisory firms in Germany, and on the other side, Johannes Laumann, CIO of Mutares, one of the most active turnaround investors in Europe. Together we'll take a look at the state of the distressed market in 2025, industries in transition, weak players, new financing hurdles, but also at opportunities that arise when structure matters more than just pure price. We'll talk about operational playbooks, markets caught between interest rate walls and protectionism, and how investors and advisors can make the difference right now. Enjoy listening.
Then welcome back, dear Johannes and dear Jonas.
Yes, still so shy. I hope we'll get a bit more interactive and lively, because I didn't bring two — I don't want to get too close to you — but I'd almost say two heavyweights from the German distressed and restructuring M&A market here for no reason. Quite intentionally, because we're currently in challenging times, not only in healthy M&A transactions. We talked about that at length last week with Ingo Koko, why that's also challenging, but of course also in the distressed environment. And we want to work through that today, the three of us. This is something a bit unusual for us. We do occasionally have two guests at the same time, but rarely with different perspectives from the advisory and investor side. So in that sense, I don't want to raise the bar too high, but I expect a lot from today's discussion from both of you, because the previous episodes with both of you were simply super exciting. And for listeners who haven't heard those yet, go back and listen. Johannes was there a very long time ago, Episode 10. We'll link that again in the show notes, when we talked very intensively about Mutares back then. And Jonas, you've been there twice already, Episodes 33 and 89. In the last one we gave a market update. But now today also in this three-person constellation. I'm really looking forward to that.
We're looking forward to it too. And you almost left me out for 100 episodes.
Yes, that's true. We still have a bit ahead of us, but we really enjoy having both of you as regular guests because you bring such a nice macro perspective on the market. For those listeners who haven't heard your previous episodes yet, it would be really great if you could introduce yourselves and your firms in two or three short sentences. Jonas, would you like to start briefly, or Johannes? Who wants to go first?
Very good. Yes, gladly. Actually, I think I was left out for 100 episodes if we're now at 138. So over 100. Yes, thank you Kai for the heavyweight description. That's at least true when I step on the scale, just as much as 100 episodes ago. Nothing's changed there. But otherwise, I think a lot has happened. I'm Johannes Laumann, Chief Investment Officer at Mutares. That's now been the case for 6 years. I've been with the company for 10 years. Before that, I came from consulting and operations. A bit of an unusual resume for someone who now runs or leads a PE firm. I was previously at Atlas Copco, at Porsche Consulting, and at some point at YuYang. I joined Mutares as an operational manager in 2016 and became a board member in 2019. But I think, perhaps also relevant for Mutares, I believe our investment approach very much reflects my own background. We look at companies, at carve-outs, that have an operational improvement need. And that is our key trigger for an investment. Can we make the company we want to buy operationally better tomorrow than it is today. That is our essential focus in an investment decision. And I'm looking forward to the three-way conversation.
Yes. Jonas Eckard. I'm a Partner at Falkensteg, responsible particularly in the M&A area. I've now been at Falkensteg for almost 10 years — that's also how long Falkensteg has existed. Before that, I was already involved with corporate finance and M&A. My focus, like that of Falkensteg itself, is particularly on the topic of transformation or stressed assets, as we call it. Companies that have gotten into difficult waters and then need help in various areas, for example in M&A. And we frequently come into contact with potential investors like Mutares, and I'm very much looking forward to an intensive exchange today. The topic of transformation and stress is currently on everyone's mind. There's a lot to do, also a lot of difficult things to do, and it's to be expected that this topic will continue to accompany us intensely in the coming years. So I'm very much looking forward to the exchange with both of you and the lively discussion.
Yes, perfect. I think the listeners have already gotten a good sense of why a discussion between the two of you could be really exciting. Let's maybe open up the big picture together. Of course, if we look back five years or during the COVID period, we see a period where we had a relatively low number of insolvencies, because structurally that was the case — for one, markets were flooded with money, and at the same time the obligation to file for insolvency was suspended. That has since changed. Insolvency numbers are rising steadily and strongly to a level we've rarely seen in the last 10 to 15 years, though we did see it before that period. And Jonas, you always publish your regular insolvency report focusing on the major insolvencies. Maybe we can start there and try to interpret it a bit, because in the second quarter you could almost feel optimistic reading your report — the number of major insolvencies dropped from 125 cases to just 82, so -4%. But simultaneously, water is being poured into the wine, so to speak. The first half-year with 207 proceedings is at a new high since 2018, and I think a good 20% above the previous year. How do you explain the discrepancy? Is this a trend reversal that showed in the first half or particularly in the second quarter, or was that just a temporary high?
I think there's a lot of water in the wine, because in the end, the second quarter is always a somewhat weaker quarter. And you already mentioned that, when you include the year-to-date figures and Q3, we again have significant growth in insolvency numbers compared to the previous year, over 20%. And it's to be expected that this will definitely manifest over the full year. We haven't just had rising insolvencies in Germany since this year — last year was also significantly characterized by overall growth of over 30%, that insolvencies are going up. And we're always talking about the end, so to speak, of a company's life cycle when there are insolvency proceedings. There's also naturally a huge amount happening in the market before insolvency, when a company goes into crisis, when it comes to transformation themes, where Mutares is also very actively involved. And there's even more happening there, because not every company that gets into crisis automatically slides into it — there are enough advisors like our firm that try to prevent exactly that, saying we can still find solutions before insolvency proceedings. That must also be the effort of all parties involved, to avoid insolvency. Nevertheless, we see — and this is what we're seeing in the numbers — many companies in Germany for which restructuring before insolvency simply and plainly fails hard, and then insolvency proceedings remain the only way out, because that's where you have additional restructuring instruments at hand that you can use. But also, and we'll certainly discuss this a bit, insolvency doesn't end positively for all companies in the sense of we restructure and emerge from insolvency with a renewed company — instead, we actually see a massively rising number of companies that are finally and definitively liquidated and then really closed.
I think perhaps, if I may interject briefly — if you look at Germany and especially where there are, I believe, many in the automotive supplier sector. Yes. And while a great deal of thought was given to the OEMs regarding the future drive technology and so on, not enough thought was given — and this is my view — we could buy an automotive supplier in crisis every week. Not enough thought was given to the fact that we've lost 2 million vehicles in production over the last few years, which means we've also lost 2 million component parts for vehicles, but we still have more or less the same supplier capacity in the market. And I believe it's simply healthy when players disappear from the market that are no longer viable for restructuring and at least no longer sustainable, because I think during COVID many companies that were already weak were kept alive through various instruments like the suspension of the insolvency obligation and so on, and that's now catching up.
Yes, I'm glad you say it that way, Johannes, because I've been saying the same for years now. It's no secret that insolvency administrators particularly call me when a solution is sought in insolvency and an M&A process is attempted to find a buyer from the insolvency. Nevertheless, I've also been saying for years now that we have too few companies that finally and definitively exit the market. It's part of a healthy economy to remove overcapacities from the market. The years especially up to and, honestly, also during COVID were characterized by the fact that there was a lot of capital. Everyone was eager to invest. Everyone was buying something. There were many lucky winners, but also many good investors. But it felt — and this is what we experienced here at Falkensteg and what I experienced — you sold every company you touched at the end of the day out of insolvency. We really had a near 100% success rate, which always irritated me, thinking you can't be that lucky. At some point, the deep fall has to come where we can no longer find solutions out of insolvency. And that's what we're noticing now, and I'm not sad about it. Of course, every individual case that doesn't end successfully hurts, but sometimes you need to step back and look at the big picture from an economic perspective, and say that in sum it's important for an economy to also remove companies from the market that are consuming capacities. And it's not just about capacities in a narrow sense — it's about personnel, energy, raw materials, everything we're short of in our economy. And if that's used up by companies that don't contribute anything to the economy except losses and don't pay taxes either, that doesn't help us. So the approach of saying companies must be removed from the market, especially in the automotive area, is absolutely right, because that's where we have overcapacities. But one also shouldn't sugarcoat things right now, because the macroeconomic data for Germany are dire. And if we don't see the appropriate reactions in the very near future, it will increasingly catch companies that you might prefer not to see removed from the market. I'm thinking for example of the chemical industry, where we're currently seeing a lot. And if you close such a chemical park, it never comes back to Germany. That's completely clear. And these are raw materials that are often critically important for an economy. We had many discussions during COVID about what's actually essential when it comes to pharmaceuticals, what do we need in Germany. And similarly, it's about many precursors that come from the chemical industry. And if we don't pay attention and don't adjust the framework conditions, we'll have a rude awakening in Germany, because then there will be many insolvencies but no solution anymore, and not much will be left.
I was just trying to think while you were talking about how many chemical assets I'm looking at in Europe right now, and I don't know, but there are very many. Yes. And I believe there are some products that simply no longer have a reason to exist, right? So Mutares would have said, you should have changed. Unfortunately, too bad, unfortunately too late.
Yes. And if I look at commodity products in the chemicals area, not necessarily pharmaceutical raw materials, but if I look at polypropylene, polyethylene, polycarbonate — the commodity versions of those — you just buy them in China, or if you're lucky, maybe still in Vietnam or somewhere else in Southeast Asia. But given how these plants are set up and the energy cost structure we have here in Europe, you can do what you want. You have no chance. You can slap as many tariffs on the price as you like. It's not sustainable. And I personally live in North Rhine-Westphalia — everything around Geleen and so on, it's just difficult to operate profitably there in the current environment.
I'd like to interject — as much as I enjoy listening to both of you in discussion, and you can continue shortly — but I'd like to throw in a follow-up question, Johannes, to what you just said, and try to draw a connection. Because you said quite correctly, with commodity products, in this case commodity pharmaceutical precursors, it doesn't make economic sense to manufacture them in Germany or Europe, and that's probably true from a pure economic perspective. On the other hand, we just had a couple of weeks ago this major chip crisis around Xperia, where a crisis broke out. As I understand it — and I'm a layman technically — but even commodity chips are not high-tech chips. But in this case, due to the US-China trade dispute, it was decided not to deliver these chips in the quantities that might be needed. And in that case it was exactly the same — from an economic perspective, these chips were ordered in large quantities in Asia, and you naturally become dependent on that, just as you became dependent on cheap Russian gas on a very large scale. So the question is, where is the middle ground, where is the fine line between economic rationality on the one hand, and on the other hand industrial policy or, so to speak, state protectionism and the maintenance and assurance of supply chains, even if it might run counter to what the rational economic figure would say?
For me, it's honestly always a bit too easy to say it's a commodity product and therefore we don't need to produce it in Europe anymore, let it come from China. The expectation should be for all of us to ask how can we still keep up? That's the crucial question, because in the end, everything becomes a commodity at some point. If I think about where the Chinese started, they could relatively little. By now they can already compete in areas like machinery engineering, which is also losing market share without end. That used to be considered impregnable in terms of know-how. The Chinese have massively caught up, and it would continue like that. That's why the question for me is how do you position yourself for the future so that you can remain competitive even in the supposedly commodity space against China. That's of course extremely difficult. Yes, I'm completely with you there. But to withdraw and say energy costs are too high, I think is not enough. We're now back to pre-COVID energy cost levels. It also worked then. I believe we've simply lost massive competitiveness in Germany, particularly since COVID and now that's been many years, across the board, because we've become completely sluggish in many areas, and that needs to be broken up so that new energy can emerge and new developments can happen. Otherwise I actually see only commodities left in Germany, moving away gradually, because the Chinese won't stop and say, oh, that's too complex for me, I won't go in there. That applies to aerospace or the same thing — those are their long-term goals, to establish themselves in that market too, and they will, as the past has at least shown, accomplish that. And that's why the question is, how do we position ourselves in Germany to keep pace? Of course we'll never reach that price level, but we need to become at least as flexible and cost-competitive in various areas to have at least some chance, otherwise it will get very, very tight in the long run.
I partly agree. Let me give you a nice counterexample. I'm currently in Paris, and if you see how the mood in Germany is in the market — and I think whether something moves away or not is always, Kai, to answer your question, about how much risk one is willing to take to enter fragile supply chains, so to speak. Yes, whether that's the chip situation or some ships stuck in some canal that can't get through — there are many such cases. But how fragile, how much entrepreneurial risk are you willing to take, or economic risk are you willing to take, to enter a more fragile environment versus if you're self-sufficient, so to speak? And I still find — whether it's the automotive industry, plant engineering, or construction — if you follow the press in Germany or the mood in Germany, it's very, I like to call it a 'depressing barbecue invitation.' Where if you're here in Paris or in France, you don't hear that from them to that degree and in that extreme or that emotional intensity. From my perspective, when I look at my pipeline in this country, there's much more that's broken and it's a real catastrophe here compared to Germany. So I think we should still hold our flag high and say we are competitive and want to remain so, for which something needs to be done. I completely agree with you on that, Jonas. I don't think enough has been done yet. But I wouldn't sing a swan song about our economy. It will be — and this is, I think, also how we do business, and that's what I meant with commodity. I believe you have to focus on what you can do extremely well and where you're good. And where you're good, you can be competitive, no matter how much price pressure there is. Whether you take a turbine — that's bought worldwide from Siemens, perhaps GE is still manufacturing some. But Siemens are the best there, and they'll keep developing that turbine and remain the best. In 10 years, I'll give you my word and sign any bet.
A nice example, Johannes, because I just have one that fits perfectly — I'm currently looking at one of the foundries that casts these turbines for Siemens, which is in insolvency proceedings. Note: there are only five foundries in the world that do this. I'm not sure we won't even shut ours down in the end, because it's simply not competitive compared to the Chinese on pricing. The foundry industry in Germany is a difficult industry — take all the bureaucracy behind it. Yes. The Chinese delivers more willingly, and now it's gotten so bad in this case — to pick up on your point — that Siemens, one of the companies mentioned, is actively advertising and saying, please someone buy this location. Yes, we need it because we see massive growth ahead in the turbine area. And we want to see a location here. But that doesn't necessarily mean someone will, because the framework conditions in Germany are simply too difficult and too poor. This week I received a rejection from two foreign interested parties with the blunt reasoning — that actually hit me a bit — they spoke with their shareholders, in Germany there is currently no investment, rather they're concentrating, if on Europe, then also not on France, because there you have the two sick men or women of Europe, so to speak, compared to each other. We should look at the front runners, and to my great surprise, they named Italy and Poland. That's significantly more attractive than looking at Germany or France. And yes, we need to focus in Germany on what we can do. We always thought we could do automotive — we slept a bit too long on that and now we're in the deep water. I think it's really important to critically examine what were the mistakes of the past and what do we need to change now to become agile again and really tackle a transformation. I think the complete framework for transformation in the classical sense is missing in Germany. What we're doing right now is very much managing and maintaining.
I agree with you, and I think, Kai, you mentioned it earlier. I think we're quite representative in that regard. And I can fully understand the reasoning of those interested parties. Of the major countries, my smallest pipeline is currently in Italy. So if I take Germany, France, and so on. And the reverse conclusion is, if I have a small pipeline, things are going well there.
Exactly. Yes, that's actually interesting. That's why you're currently traveling in France. Yes.
And the pipeline in Germany is certainly also well-filled, but you have to look carefully at what you make of it.
But then tell me — regarding the cost drivers we just mentioned, and let's stick with the foundry example for now. A foundry is extremely electricity-cost intensive. Is the main competitive disadvantage the electricity price? Actually, it's not anymore. Is it the labor costs? Very many production facilities in Germany are extremely heavily automated, with a high degree of automation. Or is it the bureaucracy that then essentially acts as overhead and adds to the costs? So where exactly on the P&L is Germany no longer competitive?
Well, I can take that. I'll add one thing. Then Jonas, you can go. It's the capacity utilization. I think for a foundry, you have to drive it at the top line, the utilization. If you only get 70% utilization in the foundry, the electricity costs, labor costs, bureaucracy — doesn't matter. You won't make this thing profitable, period. Because you have such an extremely high fixed cost block. Yes.
Yes. And it's a very, very vicious downward spiral. In the end, all factors work together. If it were only one — except for capacity utilization, where the government can only do so much — then it would be easy to solve.
Yes. In the end, it's of course a combination of all these factors. And that makes it so incredibly challenging for a foundry. But I think a very important aspect comes into play in Germany that you at Mutares probably also see frequently, and we do too, because we're naturally involved in these transformation themes. Companies haven't invested for years, and precisely through that you obviously lose massive competitiveness, and then ultimately also capacity utilization, because you're not competitive and you get caught in this downward spiral. You can't fill your shop anymore because you can't offer prices with your ancient machine park that you probably have sitting there. I always love it when you go into such a place and all the machines are green — then I always know they're all from 1970, 1980. And you know right away, you'll have a hard time competing against the Chinese, because he has one standing around in a different color and it's from 2020 or something, a machine as big as a football pitch. And that also represents a very, very big problem, because we've simply been running on substance in many areas for the past years, because the environment in Germany hasn't been attractive enough to say I'll invest another massive amount of money because I firmly believe I'll have the utilization for the next 10 to 20 years. That's the deeper economic reason behind it.
So you at Mutares don't go in somewhere and say we'll install a new machine park here and then the business will run again?
We don't do that. We never do that. But that's exactly the point, to pick up on the chemical example, right? You have here really good chemical plants from the past, even when there was investment, or a little investment was made, or average investment was made — the Asian built a completely new plant on a greenfield site 10 to 15 years ago, and yours is from 1960, 70 — in the best case — or 1920 in the worst case. Competitiveness is just harder to establish when he has the thing on a greenfield site. Then add energy costs, which are currently zero in China because they produce too much electricity and don't know where to put it. These are factors that are difficult to catch up on. And I also believe — I never believe that a restructuring of a company works just through investment. I never believe that. And there are a few examples for me — it has now changed as well, but when I sometimes speak about Porsche, I still say 'we' from when it wasn't yet a corporation. Zuffenhausen certainly doesn't have a top-modern production plant, quite the opposite, but for years they were the most profitable automaker. There were driverless transport systems running around that were 35 years old. Yes, and that was transported across bridges and over various floors. And not a green plant like Porsche built in Leipzig, for example. And yet that was a highly efficient plant. So I believe, with just CAPEX you can't fix anything. Sure, at some point you need CAPEX to take the next step in development. But I think it's, as you said, a sum of several factors that need to work together, and some you simply can't reverse, no matter what you do.
So, I've now heard from both of you — actually it's good when economies or industries, and also entire economies, clean themselves up a bit by having companies that are no longer competitive go into insolvency. On the other hand, you hear and read everywhere that the baby boomer generation is slowly retiring. I believe in the next 10 to 11 years, a good 20 million employees will have reached retirement age, and that will only be partially offset on the other side by younger people. So net, many millions of people will leave the labor market. Can I just sit back? Because, sure, companies die. At the same time, we're losing lots of workers. Isn't that perfect — then there won't be a big impact on the unemployment rate, or is that too short-sighted?
No, that formula doesn't quite work out, because the state naturally misses out on some revenue to pay the pensions, for example.
Good, that's another perspective I didn't want to throw in — I would have brought that later. But first, I understand that some companies are no longer competitive and the workers who work there are perhaps not going into the exact same company, but are retiring piece by piece anyway. So I ask myself, where is the problem? Or is the problem really just that the pension level is too high and companies have to be artificially kept alive so that pensions can be paid?
I think, the one thing is — to address the big picture, now specifically related to the company — it's still, from my perspective, difficult depending on the industry to find the right people. The right capacity. And you notice this in private life — try to find a cool carpenter who has time, or an electrician who has time — and similarly it's probably the case in the machinery engineering industry. If you look at who, for example — I'd have to lie because I don't know exactly, but at Atlas Copco it's like this, at Siemens it's similar — who designs the turbines in the end, it's not the 31-year-old master's graduate, but someone who's about to retire. And also, I don't know, in the foundry — and that plays into this again. We often see, when we buy companies that haven't invested in a long time — otherwise we wouldn't buy them — and where things aren't going well, you often have machine operators who tell you, yes, at this machine, if you want to get product A, you have to set it to A-1, because the machine is so old and so imprecise that otherwise it doesn't work. Yes. And in the end it's a no. And I believe you have to make sure that no is flowing away. The quality and not the quantity. Whether in the end — I think artificial intelligence will replace a lot in the overhead area. I'm a huge fan of that. Amazon is showing us the way, honestly, and from my perspective, we can learn not just the technical part but also the entrepreneurial part from that, because Amazon says artificial intelligence replaces 10% of my workforce. They don't have the processes at 100% to no longer need that 10% of the workforce today. But they're taking the entrepreneurial risk that it will somehow work out. I'll put it bluntly. And I believe that risk is what I actually wish for more. Yes. Then we also don't need to talk so much about singing swans, from my perspective. Simply taking more risk, being willing to risk something, and not somehow clinging on with suspenders and another grip.
