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leveraged and in a difficult situation. Further, one‐third ofan employee’s annual income was a huge investment formost managers – many were afraid to risk such a largesum. Messer Griesheim’s top management spent a greatdeal of time in one‐on‐one meetings with the managers toexplain the programme, and that its level of risk was in factless than imagined given the participation of the privateequity investors. In the end, about 85%–90% of MesserGriesheim managers participated, some investing a greatdeal of their money. One manager invested €1 million.Exit: empowerment of the familyThe exit agreement stipulated a window for a MesserGriesheim IPO for which agreement from all parties wasrequired up until 30 June 2003. Between 1 April 2003 and30 September 2003, the Messer family could exercise its calloption and buy back the Allianz Capital Partners/GoldmanSachs shares. As of 1 January 2004, the investors then hadthe right to pursue an IPO or sell their shares to the highestbidder. A “drag along” right existed that would also haveforced the family to sell their shares to the same bidder.It became clear that strategic buyers were willing to paystrategic premiums, and, therefore, an IPO was unlikely tooffer the same value potential as a trade sale. In the secondhalf of 2003, the pressure on the Messer family to exercisetheir call option increased and initial talks with potentialbuyers were initiated. The Messer family was not able to buyback the whole entity and, therefore, aimed at gaining controlat least over parts of the business. At first they hoped tokeep at least half of the German operations and additionalparts of the business from Allianz Capital Partners andGoldman Sachs while selling the rest of the company to astrategic buyer. Germany was the home country and seenas the heart of the company. S. Messer had proposed AirLiquide as a possible buyer; the investors had considereda public auction. However, as Goldman Sachs initiated theauction for half of the Messer Griesheim German concernsand additional businesses in the UK and the US, incomingbids were too low. Goldman Sachs advised that as the corebusiness the German concerns were the most attractivepart for any buyer, and the team realized they had to sellthe German operations in their entirety. A second auction,including the entire German business, was set up; againonly a few bids came in. In March 2004, with an additional€100 million added to their offer, Air Liquide acquired MesserGriesheim’s German activities, as well as its US and UKconcerns, for €2.7 billion. The other parts of MesserGriesheim were bought back by the Messer family. Mostfelt Air Liquide did not overpay; the sales multiple wascomparable to other deals. Some felt a higher price mighthave been gained for the entire company, but this mighthave raised anti‐trust issues.The final exit was in May 2004. Messer Griesheim’s German,UK and US operations were sold to Air Liquide. The Messerfamily bought back the remaining interests in WesternEurope, Eastern Europe, China and Peru. The deal wasclosed after the end of the call window, however, asthe investors were able to see the company’s positivedevelopment and a successful exit seemed on the horizon;they therefore decided to extend the call period. S. Messerwas installed as CEO, and subsidiaries in Germany, UK andthe US were sold to Air Liquide. A holding company was setup, trading under the name Messer Group, encompassing allremaining subsidiaries in Europe, China and Peru (see Exhibit8). Schmieder joined the management board of Air Liquideafter the exit of Allianz Capital Partners/Goldman Sachs andS. Messer took over the position as CEO in the newlyfounded Messer Group.Coming full circle, in 2005, the Messer family purchased theoutstanding MEC Holding shares held by the Carlyle Group,acquiring all the shares in the company’s welding and cuttingdivision; in 2006, both businesses of the Messer Grouppassed the €1 billion sales mark and looked to expandactivities in Europe and Asia.Postscript: The Messer Griesheim deal – a loss leaderfor investors?The Messer Griesheim deal represents a unique casewhere the break‐up of a company was not motivated byinvestors, but rather was initiated by the family who sawthe opportunity to regain control over attractive parts ofthe business, albeit not the favoured German operations.For the investors, the strategy did not maximize their return;a higher return could probably have been realized by sellingthe company in its entirety to the highest bidder. By allowingthe Messer family to partly buy back their company, theinvestors gave away further return potential, since a strategicbuyer might have paid a higher price.There were two rationales behind this: the Air Liquide dealwas highly profitable, so the investors were able to achieve ahigh return on that side of the deal (8x EBITDA exit multiple);and it enhanced the relationship of trust between the familyand investors. Goldman Sachs/Allianz Capital Partnersprovided the company with the required equity financing tobuy out Hoechst and they developed and maintained a goodrelationship with the family; Goldman Sachs/Allianz CapitalPartners enhanced this trust by helping the family regainpower over parts of Messer Griesheim businesses. Ratherthan emphasizing the effort to maximize returns, the regainof control over various parts of the Messer family’sbusinesses enhanced the good reputation of both GoldmanSachs and Allianz Capital Partners in the market – particularlyas the Air Liquide deal was already providing a high return.As a commentator in The Economist noted, “Goldman Sachsand Allianz Capital [Partners] would love it to be known, fromthis example, that although they might have made moremoney if they had found an industrial buyer [for the wholeentity], they can be fairy godmothers to family firms whomight be wary of using private equity.” 2222“Face value. Private equity and family fortunes”. The Economist, 10 July 2004.98 Case studies: Messer GriesheimThe Global Economic Impact of Private Equity Report 2008
Exhibit 1: The Messer Griesheim dealMesser GriesheimHoechst 66.7%Messer Industrie a 33.3%December 1999Spin offMesser GriesheimApril 2001 ACP/GS 66.2% May 2004Messer Industrie a 32.1%Messer Employees 1.7%Air Liquide(Messer Griesheimbusinesses in Germany,US and UK)Messer GroupMesser Industrie a 100%Messer GriesheimCutting & WeldingMesser Industrie a 100%October 2000MEC HoldingMesser Industriea49%Carlyle Group 51%February 2005Castolin EutecticSource: Case writers’ research.Note: a. Holding company for the Messer family’s interests.Exhibit 2: Market size and market shares of majorproducers (1999)Total: e30.1billionOthers25%Air Liquide18%NipponSanso4%BOC14%Messer5%Air Products9%AGA/Linde11%Praxair14%Source: “Case Study: Messer Griesheim LBO”, Goldman Sachs,Vallendar, 27 April 2007.The Global Economic Impact of Private Equity Report 2008 Case studies: Messer Griesheim 99
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The Globalization of Alternative In
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ContributorsCo-editorsAnuradha Guru
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PrefaceKevin SteinbergChief Operati
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Letter on behalf of the Advisory Bo
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Executive summaryJosh lernerHarvard
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• Private equity-backed companies
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C. Indian casesThe two India cases,
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Part 1Large-sample studiesThe Globa
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The new demography of private equit
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among US publicly traded firms, it
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should be fairly complete. While th
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according to Moody’s (Hamilton et
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draining public markets of firms. I
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FIguresFigure 1A: LBO transactions
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TablesTable 1: Capital IQ 1980s cov
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Table 2: Magnitude and growth of LB
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Table 4: Exits of individual LBO tr
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Table 6: Determinants of exit succe
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Table 7: Ultimate staying power of
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Appendix 1: Imputed enterprise valu
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Private equity and long-run investm
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alternative names associated with t
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4. Finally, we explore whether firm
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When we estimate these regressions,
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cutting back on the number of filin
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Table 1: Summary statisticsPanel D:
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Table 4: Relative citation intensit
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figuresFigure 1: Number of private
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Private equity and employment*steve
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Especially when taken together, our
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Page 67 and 68: and Vartia 1985.) Aggregate employm
Page 69 and 70: sectors. In Retail Trade, the cumul
Page 71 and 72: employment-weighted acquisition rat
Page 73 and 74: FIguresFigure 1: Matches of private
Page 75 and 76: Figure 6:Figure 6A: Comparison of n
Page 77 and 78: Figure 8:Figure 8A: Comparison of j
Page 79 and 80: Figure 11: Variation in impact in e
Page 81 and 82: Figure 12: Differences in impact on
Page 83 and 84: Private equity and corporate govern
Page 85 and 86: et al (2007) track the evolution of
Page 87 and 88: groups aim to improve firm performa
Page 89 and 90: distribution of the LBO sponsors, m
Page 91 and 92: the most difficult cases. This stor
Page 93 and 94: to see whether these changes of CEO
Page 95 and 96: Figure 3:This figure represents the
Page 97 and 98: TablesTable 1: Company size descrip
Page 99 and 100: Table 5: Changes in the board size,
Page 101 and 102: Table 7: Board turnoverPanel A: Siz
Page 103 and 104: Part 2Case studiesThe Global Econom
Page 105 and 106: European private equity cases: intr
Page 107 and 108: Exhibit 1: Private equity fund size
Page 109 and 110: Messer Griesheimann-kristin achleit
Page 111 and 112: ealized it was not possible to grow
Page 113 and 114: The deal with Allianz Capital partn
Page 115: the deal, the private equity invest
Page 119 and 120: Exhibit 5: Post buyout structureMes
Page 121 and 122: New Lookann-kristin achleitnerTechn
Page 123 and 124: feet. This restricted store space w
Page 125 and 126: institutional investors why this in
Page 127 and 128: Although a public listing did not a
Page 129 and 130: Exhibit 5: Employment development a
Page 131 and 132: Chinese private equity cases: intro
Page 133 and 134: Hony Capital and China Glass Holdin
Page 135 and 136: Hony’s Chinese name means ambitio
Page 137 and 138: Establishing early agreement on pos
Page 139 and 140: Executing the IPOEach of the initia
Page 141 and 142: Exhibit 1A: Summary of Hony Capital
Page 143 and 144: Exhibit 4: Members of the China Gla
Page 145 and 146: Exhibit 6A: China Glass post‐acqu
Page 147 and 148: Exhibit 8: China Glass stock price
Page 149 and 150: 3i Group plc and Little Sheep*Lily
Page 151 and 152: y an aggressive franchise strategy,
Page 153 and 154: soul” of the business. But there
Page 155 and 156: Exhibit 1: Summary information on 3
Page 157 and 158: Exhibit 6: An excerpt from the 180-
Page 159 and 160: Indian private equity cases: introd
Page 161 and 162: ICICI Venture and Subhiksha *Lily F
Page 163 and 164: investment,” recalled Deshpande.
Page 165 and 166: 2005 - 2007: Moderator, protector a
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Exhibit 3: Subhiksha’s board comp
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Warburg Pincus and Bharti Tele‐Ve
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founded two companies at this time
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By 2003 this restructuring task was
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Exhibit 1C: Private equity investme
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Exhibit 4B: Bharti cellular footpri
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Exhibit 6: Summary of Bharti’s fi
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Exhibit 7: Bharti’s board structu
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In the 1993‐94 academic year, he
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consumer products. She was also a R
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AcknowledgementsJosh LernerHarvard
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The World Economic Forum is an inde
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