Family Business and Private Equity: Conflict or Collaboration? The Case of Messer Griesheim

Abstract

Privately held family businesses are usually characterized by concentrated ownership and the involvement of the family in both the management and control of the company. Theories of family control offer arguments both for governance benefits and costs due to the family involvement. It is therefore not yet fully understood whether buyouts of family firms offer the potential for private equity firms to create value through governance engineering. In addition, conflicts may arise in family-firm buyouts due to the shorter investment horizon of private equity firms compared to families that are interested in keeping long-term control over the company. The aim of this article is to investigate these research questions based on an in-depth analysis of the buyout of the German industrial gas company Messer Griesheim by Allianz Capital Partners and Goldman Sachs in 2001. Under private equity ownership, the company was restructured at a critical inflection point and governance benefits were alleviated through closer monitoring of the management, valuable external board members, and stronger management incentives. The deal navigated the delicate nature of specific aspects of a private equity-backed family firm and finally led to the family regaining control over a portion of its original businesses after the exit of the private equity firms.