Private equity has become a hot political issue in Germany lately, with left-wing politicians such as Social Democratic Party Chairman Franz Müntefering denouncing foreign investors as "locusts" that are devouring German industry. But such naysayers are overlooking at least two things: Germany has its own robust private equity sector, and the best German practitioners of the craft have done wonders to save many local companies once given up for lost.
Chances are, when the political uproar dies down, Germany's private equity specialists will still be at work, advancing the restructuring of Germany Inc. And much of that restructuring will bear the marks of Thomas Krenz, managing director of the German unit of London's private equity firm Permira. Krenz, based in Frankfurt, has been patiently cultivating this form of leveraged investment in Germany for 17 years -- long before many financial professionals were even aware of it. The 45-year-old dealmaker is the only one of Permira's six-member operating committee working in the country.
Krenz's industriousness was vindicated in March with the $1.5 billion initial public offering of pay-TV provider Premiere, arguably the most high-profile offering of the kind that Germany has ever seen. Krenz & Co. bought a majority stake in Premiere in 2003 from creditors of insolvent Kirch Media, agreeing to pump in $280 million to finance a turnaround. The deal seems like a no-brainer now, but at the time Krenz had serious doubts about whether the business could be saved. Before Permira bought the company, Krenz's team spent eight months agonizing over every aspect of the business plan formulated by new Premiere CEO Georg Kofler.
The obsessive scrutiny is typical Krenz -- and typical Permira. The firm aims to achieve superior returns by getting intimately involved in the operations of its holdings rather than relying solely on financial engineering. "Just showing up at a board meeting every three months -- that's not our style," says Krenz, who is known as a low-key but relentless negotiator.
Like most private equity firms, Permira is secretive about the returns it pays investors, which have included the California Public Employees' Retirement System. Yet in 2003, when Permira began gathering a new war chest, it raised $6.5 billion in six months -- a record for Europe -- and a clear vote of confidence in the firm's ability to deliver the 20%-plus returns that are expected by private equity investors.
Permira's hands-on management style is well-suited to the German market, whose transaction volume of $27.7 billion last year was up 35% from 2003. Hundreds of midsize private German companies are ripe for the restructuring needed to take them public, but founders and family owners are often deeply reluctant to sell. Krenz tries to persuade them by emphasizing that Permira will do its best to preserve and expand the business, which may well bear the name of the people selling it. In 2003, for example, Permira began taking control of Rodenstock, a $430 million Bavarian maker of eyewear and lenses owned by the family for a century. "Once we had Permira as a partner, they were extremely constructive," says Randolf Rodenstock, great-great grandson of the founder. Rodenstock, who remains supervisory board chairman, is gratified that Permira backed the acquisition this year of Danish eyewear maker J.C. Filtenborg.
Would a locust do that?
By Jack Ewing