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As exemplified by the $19 billion buyout of Thyssenkrupp Elevator, private equity leaders are bullish on Germany and taking a different approach.

In the biggest private equity deal Germany has ever seen, and one of the biggest in Europe, a consortium led by private equity firms Advent International and Cinven bought Thyssenkrupp Elevator (TKE), a division of the German conglomerate and the world’s fourth-largest liftmaker. The announcement on February 27 marked the conclusion of a protracted bidding war with another consortium as well as Kone, a rival Finnish liftmaker.

Consultants at PwC say Germany has become the most popular market in Europe for private equity investors. The value of disclosed deals in 2019 reached a record-breaking €32 billion, with many involving foreign buy-out firms.

Another development is the changing, more cooperative nature of relationships between buy-out firms, their targets, and labour and political leaders in Germany. In the case of TKE, Thyssenkrupp Chief Executive Martina Merz preferred the two consortiums’ bids over that of Kone, although it was higher, as she was concerned that antitrust issues might forestall the deal’s completion. The Kone bid was also opposed by union leaders, who believed it would result in more job losses.

A determining factor in the success of private equity leaders cutting deals in Germany is their ability to adapt to German cultural nuances. They have refined their sense for the proper timing and tone needed to navigate the local landscape, which involves complex M&A rules and a unique system of “co-determination”, which gives workers more power on corporate boards than anywhere else in the developed world, according to The Economist.

Advent and Cinven both have offices in Germany, staffed with locals who understand German corporate governance and local politics. As Steve Roberts, Partner and Private Equity Leader at PwC Germany points out, “You can only do such a deal with feet on the ground.” This trend is narrowing the playing field to PE firms with the resources for local expertise. Alexander Schmitz, a Partner and private equity expert at Bain & Company in Germany, says he expects more deals on the scale of TKE, which only a few big British or American private equity firms can make.

Buy-out firms still face obstacles in Germany. Lukas Schäfer, Partner and Private Equity Sector Leader at McKinsey in Germany points to the country’s Mittelstand, consisting of family SMEs, which are wary of private equity. Further, as Schäfer adds, many traditional German firms are in sectors such as retail and automotive parts, which are challenged by the rise of e-commerce and electric vehicles. Schmitz notes that potential buyers could also be deterred by rules that complicate their ability to take control of a target’s cash flow.

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