Posted Sunday, August 21, 2005; 12.34BST
In fairness, the caricature of cigar-chomping Americans trampling over Europe seems misplaced. While some of the major U.S. investors have Americans on staff in Europe, their public face is usually local. "We are not showing up with a cowboy hat," says the principal of one U.S. fund. Ostmeier, for example, who is based in Hamburg, is German, a former management consultant with Boston Consulting Group in Düsseldorf. He spent seven years working for a London-based European private-equity group before he joined Blackstone in 2003. Jean-Pierre Millet, who runs Carlyle's European operations out of Paris, is the first non-American to work for the company, which is based in Washington. He spent a decade running a Paris-based food group he founded before setting up Carlyle's European operations, and says using national staff was an important part of the strategy: "I didn't want Americans or English people coming to do the deals in France, Germany and Spain. I wanted French, Germans and Spaniards." One of Carlyle's first European transactions involved a major French national newspaper, Le Figaro — a deal that could have been a political minefield. But, says Millet, "they did the deal with us because they had the impression they were dealing with French people."

Foreign investment firms have incentives to improve, not destroy, the businesses they buy. Wincor Nixdorf is a case in point. The German firm, which makes atms for banks, was singled out by the spd 's Müntefering in his "locust" critique because of the profits that its investors, KKR and Goldman Sachs, made when they sold out. The two firms acquired Wincor Nixdorf from Siemens in 1999 for $709 million, and by the beginning of the year had sold their entire stake, starting with a public offering in 2004. KKR and Goldman haven't disclosed details, but people familiar with the finances say the investors at least tripled their initial investment. Over the five years of ownership, the firm has expanded in Asia and Europe, strengthened its U.S. business via a joint venture with IBM and doubled its operating profits. Karl-Heinz Stiller, Wincor Nixdorf's ceo, points out that the firm created 3,200 jobs, including more than 1,000 in Germany. "I would go the same way again anytime because I was and still am convinced about our business model," he says.

A study by consultants Ernst & Young published in France in June estimates that the 3,700 French firms with private-equity backing collectively created 39,000 new jobs last year, bringing the total number they employ to more than 1 million. At a time when unemployment in France is close to 10%, private-equity firms provide a rare glimmer of hope.

In the town of Limoges, a famed center for French porcelain, Gilles Schnepp has a perspective different from the government's anti–Anglo-Saxon mind-set. He is chief executive of Legrand, a $3 billion electrical-equipment company that was acquired late in 2002 by KKR and French group Wendel in France's biggest buyout. Legrand had been in the process of merging with a French competitor, Schneider Electric, and suddenly found itself in limbo after the European Union vetoed the deal on antitrust grounds.

Schnepp says Legrand quickly put in place a reorganization program, even before the private investors bought into the company. Still, once the new owners arrived, "they stimulated our performance," Schnepp says. Overall, "the Legrand model is turning more quickly and more efficiently." KKR and Wendel helped the firm bring in consultants, who recommended sweeping changes to more than 3,000 processes. Result: Legrand has reduced its purchasing costs by about $95 million. "They helped us formulate our needs," Schnepp says. "They gave us confidence to go further" than the firm might otherwise have done. KKR has also encouraged Legrand to acquire three firms so far this year.

Yet as the American moneymen continue their advance through Europe, the grumbling seems sure to continue. Jürgen Peters, head of Germany's metalworkers' union, for one, says his union, with its criticism of the big U.S. groups, simply "brought to light what others obviously wanted to leave in the dark" — and has every intention of shining more lights. It's not just labor that is complaining. Blackstone made such a big return — more than $3 billion — from its investment in German chemical-fiber company Celanese that it has drawn the ire of a New York City–based hedge fund, Paulson & Co., which alleges that the initial deal wasn't fairly valued. And some private-equity firms are starting to fret that the European buyout scene has grown so fast that it's in danger of overheating. Says Carlyle's Millet, who is worried about the increased amounts of debt and dwindling returns: "All the ingredients are there for a big blowup."

Millet is well aware that many Europeans still view U.S. private-equity groups as unscrupulous financiers. But with time, as more and more companies on the Continent get bought and resold, he believes people will understand that private equity is a positive force. "We are important actors, and we are creating value, we are creating jobs, and we are developing firms. Little by little, that message is getting through," he says. Perhaps, but the Europeans are still on the lookout for locusts.

Reported by Daren Fonda and Barbara Kiviat/New York

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