Jan 16, 2020

Private equity "plague" descends on Germany's elevator industry

Gif of a elevator full of money opening and closing

Illustration: Aïda Amer/Axios

In 2005, a top German politician famously referred to private equity as a "plague of locusts," long predating U.S. political hostility toward the industry. Now, private equity is about to learn if German sentiment has softened.

Driving the news: At least four PE groups are vying to buy the elevator business of German industrial conglomerate Thyssenkrupp, with expectations that the deal value could top $20 billion.

  • Also bidding is Kone, a Finnish elevator maker whose CEO publicly chided private equity's interest in the unit before teaming up with CVC Capital Partners.

Why it matters: Yes, elevators are boring. But they're also vital to urban development and the sort of reliable cash generator that makes buyout barons salivate.

  • Thyssenkrupp is the world's fourth-largest maker of elevators and escalators, but is selling the profitable unit in order to shore up an otherwise-troubled balance sheet.

The big picture: There have been some large buyouts of German targets since the "locusts" comment, such as Bain Capital and Cinven buying generic drugmaker Stada for around €4 billion in 2017, but nothing close to the size of what's being discussed with Thyssenkrupp.

The outcome of this deal could determine how private equity is viewed in Germany, and perhaps even elsewhere in Europe, for years to come. Both by regulators and by other potential targets.

  • If successfully purchased and managed (by someone other than Kone), then "locusts" will become little more than a fun footnote.
  • But, if financially engineered in a callous and/or calamitous way, private equity's future in the country will suffocate from its own swarm.

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