Divestment Bilfinger Sells the Family Silver

U.S.-based investor Kohlberg Kravis Roberts & Co is reported to be circling the lucrative facilities management division of engineering giant Bilfinger. But is the struggling firm throwing the baby out with the bathwater just to appease its major shareholder?
A Bilfinger building site.

When the struggling engineering and services firm Bilfinger confirmed last week it was trying to sell its valuable facility management and construction division, speculation centered on a half-dozen possible suitors. European construction companies, international real estate brokers and German facility managers were all touted as possible buyers.

But now it seems financial investors are more likely to win out, with the London arm of U.S. private equity investor Kohlberg Kravis Roberts & Co currently the favorite to acquire Bilfinger's silverware, sources told business magazine WirtschaftsWoche.

Neither KKR’s European boss, Johannes Huth, nor Mannheim-based Bilfinger would comment.

The probable sale of the Facilities Management division — with 22,000 employees and annual sales of €2.4 billion, or about $2.6 billion — is the latest development in the crisis-ridden company’s drama.

As recently as October, chief executive Per Utnegaard announced a “two-pillar strategy.” This was based on the thriving facility management and construction business on one hand, and the industry services division, which is badly in need of restructuring, on the other. Only the power plant services division, decimated by the German government’s transition to renewable energies, was to be sold in its entirety.

It appears to be more important to Mr. Utnegaard that major shareholder Cevian makes a profit from its misguided investment.

But three months later it appears to be more important to Mr. Utnegaard that major shareholder Cevian makes a profit from its misguided investment. The Swedish financial investment firm currently owns 26 percent of Bilfinger’s stock.

Eckhard Cordes, Cevian’s representative and chairman of Bilfinger’s supervisory board, maintains a possible sale of the FM division came as a “complete surprise”— though rumors to that effect have been making the rounds for nearly six months.

Shortly after Mr. Utnegaard took over as supervisory board chair in June, the head of the facility management group, Otto Kajetan Weixler, suggested that his division be sold.

It was Mr. Weixler who had brought it to Bilfinger from the failed construction company Philipp Holzmann in 2002. Now, 14 years later, the 57-year-old manager wants to leave the sinking Bilfinger ship and take the division with him. Under Mr. Utnegaard, the FM division is threatened with collateral damage caused by austerity and job losses throughout the company. It has received almost no investment in recent times.

News reports of Mr. Weixler’s proposal last year attracted interested parties. Then, in response to questions from WirtschaftsWoche last week, Bilfinger went public with its announcement that negotiations were underway.

Mr. Utnegaard and Cevian had initially rejected Mr. Weixler’s idea. But that apparently changed when they saw offers on the table. KKR is reportedly offering €1 billion for the division – 14 times annual profits. A figure of seven to eight times would be considered usual.

 

But financial investors are under pressure to invest liquid funds, which are so plentiful thanks to low-interest rates. And managing office and residential real estate promises reliable profit margins. In two or three years the buyer could float the FM division — enhanced by international acquisitions — “with returns between €2.5 billion and €3 billion,” according to a top manager in the industry.

The same insider doubts that Cevian would use proceeds of a sale to restructure Bilfinger’s industrial services. “They will issue a special dividend to plug the holes in their own coffers,” said the source.

For once proud Bilfinger, selling its valuable Facility Management division would be the “beginning of the end,” according to the industry manager.

 

This article first appeared in the business magazine WirtschaftsWoche. To contact the author: [email protected]