You may never have heard of Brainloop, but this boutique IT firm processes Germany’s biggest business secrets. Its secure data routes are prized by more than two-thirds of the DAX-30 index of leading listed companies. Clients include Adidas, Allianz, Bayer, BMW, and on through the German corporate alphabet.
So what happens when a foreign company wants to buy such a secure communications hub? This tricky question became urgent this week, as Brainloop’s US rival Diligence intends to buy the Munich-based company for an as-yet-undisclosed figure.
It isn’t just that US-German relations are at a very low ebb right now. Europeans are worried about American approaches to IT security, especially since the United States passed the “Cloud Acts” earlier in the year. These could allow Washington to seize US citizens’ and companies’ data held overseas. That’s one more horror scenario for German firms, already concerned about data security and industrial espionage.
In the last two years, anxieties have risen about overseas firms, especially those in China, buying German tech companies. This led to the government strengthening its powers to veto deals that could undermine national security, and the new rules on foreign takeovers explicitly address cloud computing.
Fear of an American takeover
But it’s almost unprecedented that an American takeover could be seen as having national security implications. China has been the focus of recent anxieties about security, with Berlin blocking two high-profile Chinese acquisitions in the past two weeks. But in general, Berlin has been reluctant to step in to prevent foreign takeovers.
Brainloop, founded in 2000, may be Germany’s market leader in secure corporate communications, but the company is no giant: In 2016, its revenues were just €20.4 million ($23.6 million). Its bottom line performance has hardly been stellar: losses of €5.7 million in 2015, a modest profit of €2.7 million the following year.
The firm, which has subsidiaries in Britain, France, Switzerland and Austria, is largely owned by two venture funds, Inventment and Baytech, plus a host of smaller investors, including CEO Thomas Deutschmann.
Both Diligent and Brainloop stress that corporate clients will see no reduction in security, and no Americanization of the business. “Trust is our biggest capital. Absolutely nothing will change in terms of data security,” said Diligent boss Brian Stafford. All of Brainloop’s data centers will remain in Germany and it will remain an autonomous entity.
Mr. Deutschmann echoed those reassurances. He told Handelsblatt that client security will actually improve, thanks to security technologies the firms will jointly develop. European, not American, regulations will form the groundwork of their data protection, he said, leaving clients in complete control of their data.
Keep your servers in Germany
Clients will keep an eagle eye on these questions. Philipp Schultheiss, head of board staff for BBBank, a German bank which uses Brainloop software, said two factors remain crucial: end-to-end encryption of data, and servers located in Germany.
Although Mr. Deutschmann stressed that hardware would remain in Germany, he said the business was consolidating and internationalizing fast. So far, the US firm has specialized in communications for supervisory boards but the market is growing and diversifying rapidly.
Right now, Diligent is busy calming its clients’ fears, but the managers may wind up repeating themselves, because the American company is open to further acquisitions.
Axel Höpner is head of the Handelsblatt office in Munich, focusing on the state of Bavaria’s companies, including Allianz and Siemens. Dana Heide is a political correspondent for Handelsblatt in Berlin, with focuses including the Economics Ministry and digital policies. Christoph Schlautmann covers the logistics and waste management sectors for Handelsblatt. To contact the authors: firstname.lastname@example.org, email@example.com, firstname.lastname@example.org