Online Extra: The Art Of The Buyout, Euro-Style
Thomas Krenz, 45-year-old managing director of the German unit of London-based private-equity firm Permira, helped pave the way for the current boom in European deals. As a German working for a London-based partnership, Krenz also helps confound the stereotype of buyout artists as greedy Americans. Still, it hasn't been easy getting even Corporate Germany to warm to the idea of selling to private-equity buyers. Recently, Krenz spoke with BusinessWeek's Jack Ewing about building the business in Germany and private equity's potential. Edited excerpts of their conversation follow.
Q: Schroder Ventures, now known as Permira, first came to Germany in the late 1980s. What kind of reception did you get? A:
Q: Schroder Ventures, now known as Permira, first came to Germany in the late 1980s. What kind of reception did you get?
A:We actually got little, if any, reception. Nobody knew private-equity funds, so when we were trying to find transactions we would encounter, by and large, huge resistance. There wasn't a developed mergers and acquisitions market. Any German corporation those days was very hesitant to sell an asset, and if they wanted to sell didn't consider private equity to be an appropriate entity. Private equity was left out of most deals.
We were left with two things: international vendors, predominantly American vendors, selling German or European companies. Then, family businesses. If you buy from an owner-founder, you're basically left with a small company, without the management. That was the environment at the time. So we worked on developing the companies we acquired, which is still our strength.
We call it impact investing. We try to find a strategy to do something different, working very closely in partnership with management teams. We're probably less good at just financial engineering -- just showing up at a board meeting every three months, that's not our style.
Q: Private-equity activity in Germany still lags the U.S. and Britain. What's the potential of the market? A:
Q: Private-equity activity in Germany still lags the U.S. and Britain. What's the potential of the market?
A:If you look at the private-equity market today, if there are a dozen transactions worth 3 billion-plus euros per year, that's healthy. It's growing, it's attractive, but we're coming from a base where a 3 billion euro deal is good.
The environment really changed in the mid-'90s, when we and other people started doing larger transactions. Eventually the sum of all these decently sized transactions, decent prices, and decent exits encouraged the big corporations to consider selling to private equity. That accelerated at the beginning of this century. Bigger funds started to be able to pay higher prices than trade buyers. At any auction today you find mostly private equity.
Q: Have prices paid by private equity buyers have reached the point where it's harder to make money? A:
Q: Have prices paid by private equity buyers have reached the point where it's harder to make money?
A:A lot of U.S. buyout funds have either raised European funds or have bigger allocations for Europe. Most have been sold on the basis that Germany is going to be massive. If you tell an investor you want to be focusing on Germany, you have a lot of pressure to find a target.
There was a phase where too many private equity professionals had to prove they can do buyouts in Germany. They had to rush, and that meant higher prices. That phase is over now. Recently, I haven't seen a lot of people doing stupid stuff. People are doing risky deals, but that's part of the business.
Q: Tell us about Premiere, the pay-TV company you acquired control of in 2003, and listed in Frankfurt in March. A:
Q: Tell us about Premiere, the pay-TV company you acquired control of in 2003, and listed in Frankfurt in March.
A:Premiere was in a shambles [in 2003]. It was one of the reasons Kirch Group became insolvent. The key was the management team. The [creditor] banks had brought [TV veteran Georg] Kofler in, and he had worked on a turnaround plan.
When we first met we were suspicious such a plan could be achieved. We spent months and months working on every detail -- technology, access systems, call centers, outsourcingO. It was many months of hard work. From the first meeting to closing was about eight months.
Today, there's hardly much left done the same way as three years ago. A lot of this goes back to Kofler and his team. They have done a fantastic job. They delivered the plan.
Edited by Cristina Lindblad