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Once Vilified, Foreign Investors Embraced as Firms Seek Successors

Märklin Chief Executive Florian Sieber speaks to local officials in Nuremberg. Source mein-mitteilungsblatt.de
Märklin Chief Executive Florian Sieber speaks to local officials in Nuremberg.
  • Why it matters

    Why it matters

    Privately owned small and medium sized companies, the backbone of the German economy, are increasingly opening themselves to foreign investors.

  • Facts

    Facts

    • A German politician once compared hedge funds and other professional investors to “locusts,” referring to the biblical plague.
    • Faucet maker Grohe became a symbol for the struggle of German mid-sized companies against powerful western investment interests.
    • Under new owners, Grohe is thriving, flirting with stock-market plans and making acquisitions in China.
  • Audio

    Audio

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It is scarcely a decade since Franz Müntefering, at the time the chairman of the Social Democratic Party, compared financial investors to locusts and prophesied a biblical plague. The pestilence would come, Mr. Münterfering warned, if the world did not act to block the machinations of anonymous funds and private-equity firms.

The catalyst was the handing off of the Sauerland-based faucet maker Grohe from one financial consortium to the next. The owner family had gotten out of the business years before. The case of Grohe became a synonym of the struggle that German mid-sized companies were waging against the greed of financial acrobats from abroad.

Today, nobody gets indignant when Willy Bogner, a fashion entrepreneur from Munich well-known in ski circles, commissions none other than the U.S. investment bank Goldman Sachs to find a successor who can also be a financial investor. At least no indignation exists about a potential new owner. That’s because the multi-talented Mr. Bogner, 72, is somewhat late in getting around to regulating his legacy.

It is scarcely a decade since Franz Müntefering, at the time the chairman of the Social Democratic Party, compared financial investors to locusts and prophesied a biblical plague. The pestilence would come, Mr. Münterfering warned, if the world did not act.

His problem is shared by the owners of hundreds of mid-sized German companies each year. The founding generation retires because of age, but has no successor.

For this reason, anonymous investors are increasingly stepping in and taking the place of the founder’s children. That is regrettable, because entrepreneurs such as Mr. Bogner are a dying breed. For decades they had a decisive influence on German mid-sized companies, which conquered the home market first and then international markets, thereby establishing an image of Germany globally as the country of hidden industrious champions.

That financial investors are often the only alternative, of course, has something to do with the founders themselves.

It is seldom that successful entrepreneurial progeny grow up under the stern gaze of strong-willed owners. The founders of many family firms are far past the age of 70 when they begin to put their life’s work in order, which shows that many of them simply can’t let go at the right time. A grave mistake. What full-grown, experienced son or daughter wants to wait until the age of 50 for the boss’s chair finally to be yielded?

 

Grohe CEO David Haines. Source BBC
David Haines, the CEO of German faucet maker Grohe, a company that has flourished under foreign investors. Source: BBC

 

But there are other ways. Luckily, Mr. Müntefering’s apocalypse has not come to pass. Of course, there are examples such as Märklin, the manufacturer of model trains. The financial investor who took it over drove it right into a ditch. For the sake of completeness, however, it must be mentioned that the former owner of a company so rich in tradition had already been unsuccessful and thrown in the towel.

But in the case of Grohe, which is seen as a textbook case, the concept that a “coolly calculating financial investor brings stumbling middle-sized company back on the right path” seems to be working.

Grohe is flirting with stock-market plans and has even made acquisitions in China. Not the other way around, as with many other German mid-sized companies.

Dieter Fockenbrock is head correspondent in the area of Businesses and Markets. This article was translated by David Andersen. To contact the author: fockenbrock@handelsblatt.com

 

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