Hanns Ostmeier was stunned to pick up a popular German newspaper one recent Sunday and find a photo of himself along with several colleagues in a mock WANTED poster. Ostmeier's offense: he runs the German operations for the Blackstone Group, the big U.S. buyout firm. Blackstone isn't exactly a household name in Germany. But this spring, a top German politician named Franz Müntefering likened Blackstone and other private-equity groups to "swarms of locusts" that fall on companies and devour all they can before moving on. "Some financial investors don't waste any thoughts on the people whose jobs they destroy," said Müntefering, who is chairman of Chancellor Gerhard Schröder's Social Democratic Party (SPD) and who promised to fight against what he called this "anonymous, faceless" form of capitalism.
The critique, just before a key state election that the SPD lost badly, sparked a furor and a nationwide debate about capitalism that continues to reverberate. Initially nervous, Ostmeier and managers at other major private-equity groups in Germany were silent. But these days, Ostmeier is speaking out in public, trying to convince his fellow Germans that private-equity investors are not villains but heroes who are good for the nation because they increase business efficiency. "Germany is now part of the global economy. It's essential to have that debate and come to grips with it," he says. "The part I don't like is the personal attacks."
The backlash against American "locusts" in Germany reflects recent wrenching shifts in the way continental Europe does business. Germans in particular have taken pride in their "humane" form of capitalism, characterized by relatively short working hours and high pay, in contrast to what they see as a more cutthroat, competitive American way. But as global competition grows, European firms are under pressure to trim costs. Private-equity transactions--in which investors buy up a company using substantial amounts of debt, overhaul operations, then sell out after a few years--have been common for years in the U.S. and Britain. They used to be the rare exception in continental Europe, where financial leverage has long been frowned on and relationships with investors were based on tradition. No longer.
Starting in the late 1990s, all the big U.S. players, including Blackstone, Kohlberg Kravis Roberts (KKR), Carlyle Group and Texas Pacific Group, set up small-scale European operations. They're now bustling, growing rapidly and accounting for ever more of the U.S. groups' business. In four years, Blackstone's investments in Europe have jumped from about 10% to 30% to 40% of its total business, and the firm has opened offices in London, Hamburg and Paris. "It has become quite a significant part of our business," says Stephen Schwarzman, Blackstone's CEO and one of its co-founders. "It's a moment of structural change in Europe." The American moneymen last year were involved in about one-third of all European buyouts, doing deals worth more than $25 billion. That's triple the amount in 2001 (see chart). And there's no end in sight: several of the groups, including Blackstone and KKR, are in the process of setting up new investment funds aimed in part or entirely at Europe.