Hedge funds and Private Equity - PES

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Märklin
1. Company description
Märklin is the world’s largest manufacturer of model railways. It bought up Trix, which used to
be the second-largest model railway manufacturer. At the present time, Märklin has 1 000 employees
in Germany and another some 300 in a plant in Hungary. The company has production
facilities at three locations in Germany. In 2005 Märklin’s turnover fell to €123 million, compared
with €148.5 million in 2004 and €164.4 million in 2003. Group losses amounted to €6.8 million
in 2005. The company had a credit line of €60 million with several banks. Having taken up
€55 million of this facility, it had almost exhausted its credit.
2. Economic and social effects
2.1 Private equity fund description
The sale to private equity investors was made under pressure from the banks to which the company
owed money. In the middle of 2005, the creditor banks demanded the intervention of an
investor. As the company put off its decision, two banks lost patience and sold their loans to
Goldmann Sachs. The company’s shares were in the hands of 22 family members. Three of them
blocked the sale to private equity investors until the very end. They wanted to keep their holdings,
which totalled 23% of the company’s shares, even if an investor bought out the company,
a condition that prospective investors could not accept. The company was finally sold to the
British private equity firm Kingsbridge for a price reputed to be about €30 million. A total of
€13 million was to be made available immediately and a sum of two million euros was to be tied
up to deal with any unforeseen problems. The remainder was not to be paid until the investor withdrew
from the company.
The works councils and the relevant trade union, IG Metall, wholeheartedly supported the sale
of the company by the family to the private equity investor, since all the jobs at Märklin would otherwise
have been at risk. The banks had given the company an ultimatum to agree a sale with
the private equity investor by 15 May 2006 or have their loans called in, which would have made
the company insolvent.
2.2 Effects on job creation, investments in training and education
of labour force, investments in innovation
Before the acquisition by Kingsbridge Capital 340 employees had been dismissed in 2004.
Directly after the acquisition the financial investors made at first no statements about activity
changes. In January, 2007 the company for the current year announced a planned place reduction
of 310 of a total of 1340 employees. After the turnover would be stabilised, now one goes
to the cost structures, said the manager anew named in September, 2006 Jan Kantowsky. The
most important measure is the reorganisation of the manufacture with the reduction on two of
four locations up to now. The plants in Thuringian Sonneberg with 220 employees and in Nürnberg
with 60 employees are closed down, other 60 colleagues in the home office Göppingen
will lose their workplace. The more slender manufacturing processes and the allocation of works
on supplier should provide from now on also for higher efficiency like new machines.