Monday the Alberta students we were back in class at the Technische Universitat München or TUM for short. The university system in Germany is actually quite interesting in that business degrees are only recently offered. German students take three years of engineering and then another two years of business related studies. Their semesters are longer than in Canada as well, from August to May, with 100% final exams that are taken over an eight week period. In the end they have a five year degree which can be considered the equivalent of a technical MBA and they have more exposure to engineering and science in business than Canadian students do.
We had two TUM representatives providing lectures today, Assistant Professor Eva Nathusias and PhD student Stephanie Schauml and their topics of discussion revolved around Private Equity firms. In Germany, the public attitudes towards private equity firms are more critical. Because family firms are so prevalent in industry many labour unions are leery of these firms obtaining a controlling stake and then deconstructing the operations, often shipping jobs off to cheaper foreign labour markets. I didn’t know this but in Germany if your company is over 500 people you are legislated to have a union shop to protect workers’ rights regardless if the business owner desires the union.
The lecture was about whether Private Equity firms are “angels” for providing expertise and capital or are they “demons” for draining value from profitable firms by seeking efficiencies through labor or operations. German firms are closely tied to their communities, much more so than in North America and because of their historic social, political and financial culture companies have avoided jumping into the PE pool with both feet. They often also exhibit low debt levels and high equity amounts, making them attractive targets for PE raiders. The PE firms buy out families and then transfer the debt they used to buy the firm onto the balance sheet and in essence obtain the firm for free.
With that in mind, Stephanie provided some insights into a new paradigm that is evolving around Private Equity taking a minority stake in family enterprises. Her recent studies found that there is some appetite for giving up a piece of their equity in order to secure capital for growth, extract wealth from the business, or simply bail out of a bad financial situation. In general, non family business matters and financial matters impact the desire and limits to which family firms are willing to trade part of their business to PE firms in distinct ways. She elaborated on several types of family businesses and how they differ. It brought to light the fact that PE firms are becoming more accepted in Germany and that the successful ones are considering family culture along with return on investment – quite a shift from what I would have guessed.
In the afternoon, we shifted gears again with a lecture from our own resident expert Dr. Lloyd Steier. Lloyd was recently cited as the world’s number one published academic leader in the realm of family business and it was a great treat to hear him talk with passion about his experience with family business from all over the globe. Using the idea of “ZOOMING” all over the world, he provided great insights in to how the world may have different cultural differences, organizational structures, and different approaches to society, but there is one unifying characteristic that every country shares: the importance family business has on the economy. His point was that the world isn’t so different, and that the conflicts from family to family, from country to country are not so unique. It made complete sense to me: why would sibling rivalry be different if you were from Turkey or Canada? Mothers are still the emotional CEOs, and family members are almost always the source of that first seed money for the budding entrepreneur. But what impressed me most was his passion for the subject. It’s easy to be interested when you see how excited your professor is on the subject he teaches.
As I have mentioned before, the days may be about studying but cultural experience is important as well. Tonight we experienced the epitome of Bavarian culture – a visit to the Hofbraühaus. For those who aren’t familiar with it, this three storied building hosts the largest and most famous beer hall in Germany. I was told over 1,000,000 people come each year to Octoberfest, and the Hofbraühaus is at its epicentre.
Unfortunately, what happens in Bavaria stays in Bavaria so I can’t get into more detail. There was a live Oom-pa-pa band, all kinds of sausages, schnitzels and savory dishes and big glasses. Fun was had by all.
Tomorrow we head off to the BMW headquarters – a big highlight of the trip. One of my friends Roshanne Sarty asked to guest blog for tomorrow so please look out for her perspective on our next day. ~ MH
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