In a country where 11% unemployment means retail sales are generally weak, buying a department store group is a bold call.
If that department store group, with its rag-tag mis of properties that need refurbishment and nearly 5,000 disillusioned staff, is your first corporate acquisition in Germany, it is even bolder still.
Yet that is what Dawnay Day, the UK private equity house led by Guy Naggar and Peter Klimt, did when it bought the 75 strong KarstadtQuelle chain in August this year.
In partnership with turnaround specialist Hilco - which dramatically prospered after closing its UK chain, Allders, this year - Dawnay Day paid 500m euros (£340m) for KarstadtQuelle.
While Hilco ultimately benefited from Allders' demise by selling sites to stronger retailers, it hopes to turn around the German business. Dawnay Day chairman Naggar says the plan is to invest in the stores, which are in central locations in mid-sized or small towns, mainly in North-Rhine Westphalia and Lower Saxony. Some are dimly lit or shabbily organised, while product displays suffer from a haphazard mix of good and bad presentation. Other stores, though, are bright and well organised.
The total portfolio totals 4.3m sq ft (400,000 sq m), most of which is freehold, and generates annual sales of 680m euros (£462m). The average store size is 55,434 sq ft (5,150 sq m). The stores were sold by the KarstadtQuelle group, which wanted to focus on its remaining portfolio of 89 larger department stores. Christopher Hancock, who is in charge of Dawnay Day's German operation, said he plans to add value by improving management, and there is the potential bonus of the stores' underlying property value rising over time. This seems a likely prospect, because a host of other overseas investors are now following Dawnay Day into Germany.
Naggar and Klimt strated buying overseas two years ago, and since then Capital & Regional, Miller Group, David Roberts and Tony Quayle's Edinburgh House and Reit Asset Management have rushed to follow. All are enticed by the significant gap between European borrowing rates and the yields on property in Germany, which tend to be between 7% and 10%. Even with high unemployment, retail is seen as the best performer, based on the premise that people will always need to eat and be clothed.
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