Amid a wider and increasingly ferocious debate over the relationship of capitalism, democracy and government in Germany, a senior politician has turned the spotlight on the private equity firms that are increasingly active in the country.
Franz Müntefering, boss of the ruling Social Democratic Party (SPD) and a close ally of Chancellor Gerhard Schröder, made headlines in April by referring to US and UK firms investing in Germany as “locusts”, greedily feeding on assets and destroying jobs in the process before moving on to other targets.
The comments made by Müntefering, who did not name any specific investment groups in his speech, were based on a dossier compiled by SPD researchers in order to highlight private equity’s recent activities in the country. The dossier, which was leaked to the press last week, refers to examples of alleged private equity-backed asset-stripping and lists the firms it considers instrumental in the process, including Advent International, Apax Partners, BC Partners, The Blackstone Group, The Carlyle Group, CVC Capital Partners, KKR and Permira.
Pointing to high-profile private equity deals in Germany such as KKR’s purchase and subsequent IPO of Siemens Nixdorf, the paper discusses private equity’s tendency to generate high returns over short periods of time and its potentially negative effects on portfolio companies.
Another influential politician to have read and drawn on the dossier in a public speech is Wolfgang Clement, a senior member of the Schröder cabinet, who last week spoke of incidents where German companies had literally been “sucked dry” by financial investors. “Finding examples of that is not difficult,” Clement was quoted as saying. “I’ve got those in my office”.
The firms listed in the SPD dossier have so far declined to comment. However, in today’s FT Deutschland, the German sister publication of The Financial Times, Thomas Pütter, head of Allianz Capital Partners, warned that private equity firms needed to be careful not to be perceived as unwelcome “gamblers”. According to the FTD, Pütter described as “problematic” private equity’s ability in recent months to take advantage of benign capital market conditions to refinance investments shortly after closing them.
Pütter’s comments are likely to resonate with private equity critics outside Germany, which have expressed concern over private equity-backed “quick flips”, i.e. deals that generate significant returns for private equity investors after increasingly short periods of ownership.
In Germany, the locust fury comes after a period of significant increase in private equity investment activity. Traditionally considered one of Europe’s less favourable environments for private equity investors, the country in recent years has produced a steadily increasing number of large LBOs as German corporates have turned to firms in order sell off parts of their businesses.
To what extent this process has contributed to the recent rise in unemployment is a question many Germans are immensely interested in. With over five million Germans out of work at present, foreign investors pushing for companies to be run more efficiently by cutting costs and moving jobs abroad are widely seen as damaging the country’s long-term economic prospects.