Seeking A Location In Europe? Germany Is Ideal

Monday, May 2, 2011 - 01:00

Editor: Tell us about your firm's presence in Germany and its activities there.

Tappeiner: Our firm has two offices in Germany, one is in Frankfurt and the other is in Munich. I am based in Frankfurt. Approximately 120 people, including about 55 lawyers, work for us in Germany. Of this total a bit more than 60 percent of the work is handled in Frankfurt and the rest in Munich.

The primary focus of our work is transactional, including private equity, M&A and, very importantly, restructurings. In addition we do litigation work and also provide tax advice. We also advise companies from abroad that acquire companies in Germany or set up a business here. However, our main focus is not on corporate housekeeping, like issues arising in such areas as employment law or intellectual property. We do have specialists in those and other areas that we call upon when such issues arise in connection with our transactional work.

Our clients include large international U.S. corporations, for example, General Electric, Pitney Bowes and Avaya, and we did some work for GM in connection with Opel. We also represent big German corporations like GROHE. A prominent example of our private equity clients is TPG Capital.

We also represent European corporations from other EU Countries. For example, CEZ is an energy company that is the biggest company in the Czech Republic. Another client is Atos Origin, one of the largest IT companies in the world based in France. We represented them in the acquisition of the IT business of Siemens. Where there is a matter involving multinational issues, we work closely with other Weil offices. A good example is the Lehman Brothers case where we are advising on the German aspects of the Chapter 11 proceedings.

My own practice is private equity and M&A. In the last two years this has also involved me in restructurings as my private equity clients sought to protect their portfolio companies from the consequences of the financial crisis. I am pleased to report that over the last few months, we are seeing a buildup of private equity transaction to levels that we've not seen since 2007.

Editor: Germany's economic growth and employment levels are extraordinary compared to other developed countries. What is the current economic situation? I gather that last year the German economy grew by something like 3.6 percent.

Tappeiner: That is right. My impression is that we will see this trend continuing in 2011 and into the future, although probably at a less powerful pace, with a growth rate of maybe 2.5-3 percent in 2011.

Editor: Did money invested by the German government to stimulate the economy help?

Tappeiner: Two programs played a major role. Our Cash for Clunkers program really stimulated our automotive industry. You could get up to ¤2,500 if you decided to junk your old car and buy a new one. Because the German economy is so dependent on the automotive industry, this was immensely stimulative.

The second program, which was also quite successful, involved cutting employees' hours so that most employees remained employed, with the government subsidizing their incomes. As a result of this program, many German companies kept their workforces intact so that when the economy picked up, they were ready to start increasing production.

Editor: Did good relationships between management and labor contribute to the rebound of the German economy?

Tappeiner: In Germany, the unions and other representatives of employees work very closely with management in the interest of keeping jobs, recognizing that they will only do well if their employer prospers. Accordingly, labor costs did not increase substantially during the financial crisis. There is a joint willingness to do everything possible to support German products and also to jointly support measures that make products produced in Germany more competitive.

Although the employees are represented on the supervisory board of large German corporations (up to 50 percent of the board members are selected by the employees), the majority vote remains with the shareholders' representatives. So, they can implement decisions that labor opposes. As a practical matter, labor's influence on business decisions is not substantial.

Editor: Germany has been characterized as the engine driving recovery in the EU, generally. Why is this the case?

Tappeiner: Many German companies have moved production from Germany to take advantage of the generally lower wages in the eastern part of Europe. Therefore, many German companies have subsidiaries in countries like Poland, Czech Republic, Hungary, and Romania or have subcontracted the work to independent companies in such countries.

Editor: Does the infrastructure in Germany contribute to its productivity?

Tappeiner: High speed rail lines radiating out from its major cities reduce the amount of time spent traveling. They also enlarge the area from which executive talent can be drawn. I know many people who work far away from their family during the week and commute to their homes. Cologne is 200km (124 miles) from Frankfurt, and you can get there by train in an hour. This means that the German workforce is highly mobile and can look for jobs not only where they live, but also in other cities. Our advanced transportation infrastructure also assures the fast movement of freight. The quality of the transportation infrastructure is generally high in most of the EU and beyond, whether you are talking about rail, air or highways.

Editor: What about border restrictions? In other words, is it possible to move goods within the EU and perhaps to countries on the periphery of the EU easily without being burdened by too many delays such as customs?

Tappeiner: Within the EU, you have only limited border control, although you have to be sure you have all the necessary papers. Frankfurt's airport is among the top three EU airports in numbers of passengers and in terms of freight. And, Germany and the EU have laws in place and mechanisms that smooth the way for the export of goods to other countries.

Editor: What about the future of the EU? Is it likely that the cost of saving the troubled countries will weigh down the German economy?

Tappeiner: The German government seems prepared to pay what it costs to save the troubled members of the EU. German prosperity requires that it take whatever steps that are necessary to protect the euro as a currency. Of course this is a huge burden and might limit the German government's ability to stimulate the economy or to soften negative economic impacts in a future financial crisis.

Editor: Is Germany an attractive place for U.S. companies to set up factories, research facilities and distribution centers?

Tappeiner: Germany is particularly attractive to U.S. businesses because it's the biggest economy in Europe with the largest population. Historically, there has been a very strong relationship between the U.S. and Germany, which has attracted many large U.S. businesses to Germany, including Coca-Cola, GE and Procter & Gamble. They not only have expanded in Germany as a result of building the kinds of facilities you mentioned, but many of them have recently been acquiring really big companies in Germany. Germany is a very good place to locate a business not only to serve the needs of customers in the EU countries, but also of those in countries on its periphery.

Editor: Why should a U.S. global company looking at the UK or Brussels to set up its European headquarters also consider Germany?

Tappeiner: Its position in the center of Europe gives it easy access to all parts of Europe. Second, its excellent infrastructure provides easy access not only to the EU countries, but also to countries on its periphery, including the huge Russian market. Third, you have very highly qualified people in Germany who speak English fluently and frequently have the foreign language skills required to communicate effectively in many of the other countries in which you have business interests. Finally, business success depends to a great extent on the ability to interface with other businesses. The German economy is quite balanced. Not only does it have a solid number of companies that are strong in manufacturing, it has many companies that are on the leading edge of technologies of all kinds.

Editor: How can your firm help an American company that is considering a location in Germany?

Tappeiner: Our offices in Germany are able and willing to help U.S. companies that would like to consider setting up business in Germany. First, we can provide the legal services for setting up a German operation or buying a company here. We can advise on corporate tax and employment law issues involved in getting a business started in Germany. Once the business is established, we can provide ongoing corporate legal advice on everything that is needed in connection with such a business. Tax advice is particularly important, and we have a number of tax advisors in our office who are qualified both as a lawyers and tax advisors. Such advice is essential in structuring a company and finding the right legal entity so that it is tax efficient for U.S. companies considering doing business in Germany.

Editor: Which cities are most attractive as locations for a U.S. company considering doing business in Germany?

Tappeiner: Frankfurt's airport is a major attraction. Also, Frankfurt is right in the middle of Germany so that you can travel within two or three hours to every part of Germany. Being traditionally a trade city, Frankfurt is very open-minded. Of all major German cities, it can claim the highest percentage of population (at 20-30 percent) as not being born in Germany. The second location in Germany a U.S. business should consider is Munich, which, like Frankfurt, has a strong industrial base. Düsseldorf, Hamburg and Stuttgart are all attractive, but, unlike Frankfurt and Munich, they don't have as many international players with an office or headquarters. Quite interestingly, our capital, Berlin, is not usually a target for someone from the U.S. thinking about setting up a headquarters or business in Germany. Although it is our capital and a very interesting big city, it has only a few banks and relatively few businesses.

Please email the interviewee at christian.tappeiner@weil.com with questions about this interview.