Clayton, Dubilier & Rice (CD&R), the blue-chip US buyout firm which has been keen to grow its activities in Europe beyond its London office, is not moving ahead with plans to set up an office in Germany.
Benedikt von Schröder, a German national and former investment banker who joined CD&R in 2000 as a financial partner to build up a German office, left the firm in late 2002. The departure, which people close to the firm describe as amicable, came after CD&R decided the German market would not generate sufficient investment opportunities to justify a permanent presence in the country.
Following von Schröder’s arrival at the firm, CD&R was planning to hire an operating partner to work alongside the former Morgan Stanley executive on transactions in Germany. A suitable candidate could not be identified however. Pairing financial professionals with senior industry executives is a standard feature of CD&R’s approach to buyout transactions.
Since leaving CD&R, von Schröder has joined Augusta Finance as an advisor, spending two days a week advising the London based boutique investment bank on its activities in German.
Von Schröder also continues to advise CD&R on its investment in Schulte, a German-based distributor of plumbing and heating equipment which the firm acquired in 1998 in a $226m buyout from Thyssen, the industrial conglomerate.
CD&R's most recent investment in Germany was the acquisition, alongside Allianz Capital Partners, of Fairchild Dornier, the aircraft manufacturer. The firm made a $300m equity investment in 2000, but Fairchild went bankrupt in April 2002 after the aviation industry was hit by the knock-on effects of September 11.
The Fairchild collapse was followed by the departure of Chuck Pieper, the operating partner at CD&R who had served as Fairchild’s chairman. Prior to joining the buyout firm, Pieper spent most of his career in aviation. After Fairchild went into administration, Pieper and CD&R decided to part company as none of the firm’s existing or prospective investments was considered suitable to Pieper’s specific industry expertise.
CD&R is not alone in retreating from a strategy that identified Germany as a key market for LBO transactions going forward. The country has become notorious for generating disappointing deal flow despite the size of its economy and a widely recognised need to restructure and modernise its corporate sector.
UK-based private equity houses to have turned their backs on Germany include Legal & General Ventures and Alchemy Partners, which both closed offices in the Frankfurt region recently.
According to sources familiar with the firm, CD&R is now concentrating on monitoring developments in Germany from its existing base in London.
Last year the firm took steps to build up the London team. It hired Christopher Spencer, a former senior executive at private equity house Candover, and Bruno Deschamps, who joined from Ecolab, the cleaning and sanitation products and services group.
CD&R first arrived in London in 1999 and has since invested some $1.5bn in seven transactions in the UK, Italy and Germany. Its most recent investment in Europe was the purchase of Brake Brothers, the UK food supplier, which was acquired for £434m in 2002.