December 04, 2002
From the desk of Mindles H. Dreck:In Dinosaurs We Trust
Steven Den Beste has prompted dialogue from various corners of the Blogosphere about the competitiveness of Europe. This is one of the nice things about the blog world - Steven discusses technology competitiveness, Derek Lowe chimes in about Life Sciences, one of Steven's readers writes in about manufacturing, etc. If the meme continues, we'll have an interesting cross-section of working experience reflecting on the topic.
My own experience with European vs. U.S. business competitiveness comes from two sources: Earlier in my life I worked with a number of buyout groups. Two of these groups had European funding and sought to make investments in Europe as well as North America. This was the heyday of LBOs in the United States. While both groups recorded mixed results on their buyouts here, not one European investment (covering primarily France and Germany) survived. In every case, the group sought to restructure the underlying company but was unable to do so because of local labor laws. They simply couldn't replace any employees, and they found they had little ability to obtain permits for capital improvements without actually worsening the employment problem. I spoke to one of these old clients recently, and they have narrowed their focus to Switzerland.
Working in financial services, I am also struck by the acquisitions European companies have made in the industry that somehow have not been additive. It's interesting just to list the predecessor organizations included in a few European-owned behemoths:
Deutsche Bank:
- Bankers Trust
- Scudder Investment Management
- Kemper Investment Management
- Alex Brown
- C.J. Lawrence
- Morgan Grenfell
- James D. Wolfensohn
UBS:
- S.G. Warburg
- Dillon Read
- Swiss Bank
- Paine Webber
- Global Asset Management
- Brinson Asset Management
What strikes me looking over these two lists is the number of formerly significant competitors among them - Scudder, BT, Alex Brown, Dillon Read and Brinson could all lay claim, at one point or another, to being among the most productive and profitable in their market segments. The merged institutions don't even approach the sum of the former market presence of the individual acquirees. "Two dinosaurs mating doesn't make a gazelle", goes the old saying about mergers. It's also pretty clear that when a Dinosaur eats a gazelle it's still a dinosaur.
There is a simple repeating pattern on Wall Street. Innovative finance minds build up a reputation and a franchise. (see Eric Gleacher, Bruce Wasserstein, etc.) and sell it to a large institution. These buyers have been Japanese (Nomura), American commercial banks (Nationsbank/BofA) and, of course European (Deutsche and UBS, as well as Credit Suisse). The real talent usually leaves and does it again somewhere else.
What these new firms have is Capital. Gobs and gobs of it. That's typical of the European presence on Wall Street. They tend to be most competitive where large amounts of capital make a difference. This is partly because they appear to demand a lower return on that capital, probably due to a less demanding shareholder base.
In all the cases above, both the aquiree and local management of the acquiror are largely American. I tend to take this as a lesson about size rather than nationality. Very few large institutions generate exceptional profits. Typically, the smaller shops such as the old Wasserstein Perella, Dillon Read, James D. Wolfensohn and Alex Brown generate most of the exceptional profitability. But this in itself appears to be a difference in outlook. Europeans (British possibly accepted) seem to take great comfort in the size of an institution. These larger entities take are often viewed as a public trust, a phrase viewed with less suspicion elsewhere around the globe.
Public trusts have lots of capital, but they keep getting taken by the entrepreneurs.
Posted by Mindles H. Dreck at December 4, 2002 06:21 AM | Technorati inbound links