“We are not finished yet”

Düsseldorf The family business Knauf remains on the expansion course even after the billion dollar takeover of the US competitor USG. Alexander Knauf, spokesman for the managing partners of the Knauf Group since September 1st, said in an interview with Handelsblatt: “We have enormous internal financing power and will invest considerable resources in our future and grow every year.”

Two years ago there was a takeover battle for US market leader USG after the building materials manufacturer from Iphofen in Franconia had made a hostile takeover offer. The seven billion deal succeeded because star investor Warren Buffett Knauf offered his roughly 30 percent USG share. Alexander Knauf draws a positive balance with regard to the integration of the once listed US company. This is also due to the fact that the “willingness of employees to change in US companies is higher than in Germany”.

Now that the integration of the largest acquisition in the company’s history has been completed, Knauf has made further acquisitions in Asia, among others. When asked when Knauf was big enough, the entrepreneur replied: “We’re not finished yet.”

Read the entire interview here:

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Mr. Knauf, the takeover of US competitor USG including delisting has been successful – also with the support of Warren Buffett. What is your most important lesson from the largest transaction in the company’s history?
We were convinced of the matter and went through with it. Viewed in the rearview mirror, the takeover candidate, the time, the purchase price and the procedure were correct.

You have acquired a publicly traded company with $ 3.3 billion in sales. What exactly was your mission?
Manfred Grundke (managing partner of the Knauf Group, editor’s note) and I had a specific mandate from the family: We should better develop an interesting market for ourselves and – in order to be able to handle a larger takeover – a higher amount of money aside place.

Even before the takeover, Knauf was one of the largest German family businesses with a turnover of seven billion euros. What was the specific goal?
Our line-up should better represent the world. Up until then, we were only represented in the USA with insulating materials, but not yet with plaster of paris. And the earning power at USG was low, the company was already in Chapter 11 proceedings twice (restructuring or reorganization proceedings for US companies, editor’s note), the debt was high; we buy such companies.

That sounds more like an investor than a family business …
We buy companies with below-average profitability, invest, realign them and thereby bring them to our level. This is how we generate value. We come to stay.

And how does the integration of a long-listed company into a German family company succeed?
The employees at USG and Knauf all knew where to grab. We worked almost exclusively with on-board resources. USG’s corporate culture was very similar to ours.

I’m sorry, what?
Yes, USG has a fantastic core. The integration was very easy for us, we have a similar mindset, both companies are market leaders. We have shifted the focus of the management to the stock exchange through the delisting, renewed the board of directors and thus realigned the company to the operative business.

How was the first works meeting at USG? How did you explain to the employees there that they now work in a family business and can no longer hold any shares?
That was easy. I said: All of our decisions are long-term decisions. And the best time is still ahead of us: The company is debt-free for the first time in 30 years, the money can be put into the company instead of in loan installments and interest payments. The employees notice this immediately.

How often have you been to USG instead of Iphofen?
After the closing in spring 2019, I was on site in Chicago for a week every month. During the pandemic, this was only possible through the screen. The earlier encounters paid off a lot. But when I was there for the first time in June, the joy of seeing each other again was great.

“US companies are much more willing to change”

How many managers from Germany have you installed there?
We only recruited internally and appointed a colleague from Germany to the board.

But an initially hostile takeover and delisting in the USA are not that easy to cope with …
Of course there was a lot to do, and a total of three colleagues from Knauf helped on site in Chicago. But one must not forget: US companies are much more willing to change than in Germany. And with Christopher Griffin, we were able to provide a charismatic CEO from among our own ranks.

As a family business, you still had to learn a lot when delisting, didn’t you?
We had our experts for that. To be honest, the delisting was more of a formality.

That’s why you made additional purchases straight away: the cover board manufacturer Armstrong and the Asian joint venture for plasterboard, USG Boral. When is Knauf big enough?
We are not finished yet. With the acquisition of USG, we also acquired half of USG Boral, a joint venture in Asia. Our co-partner had the right of first refusal, but we managed to make him an unbeatable offer. As a family-run company with a long-term focus, we were able to offer this and thus set up a new growth platform in Asia.

For many years it has been said time and again that German companies are now conquering the African continent. You have been active there for 15 years – is that correct?
We are growing in Africa and I believe in the long term potential. At the moment the markets are developing faster here.

“In Africa we create the market ourselves”

What do you recommend to other companies who are only now taking this step?
We usually create the market ourselves. We train people with gypsum, a building material that is mostly new to them, then we build a bridgehead, export first and then follow suit with production. We are now represented in Morocco, Algeria, Tunisia, Egypt and Tanzania. My recommendation: You really have to be on site to work with DEG, the chambers of commerce abroad and embassies.

In 2020 you will have a turnover of 10.5 billion euros, this year the takeovers should pay off significantly. How much turnover can a family business seriously manage?
There is no limit, just think of the Schwarz Group with 125 billion euros in sales. Sales and size are not important to us. It’s about handing down a healthy, sustainable company to the next generation that is stronger than we took over. We have enormous internal financing power and will invest considerable resources in our future and grow every year. Plaster of paris is really my life.

Which megatrends – including digital ones – are you dealing with?
1. Construction is becoming more and more digital, especially when it comes to customer focus.
2. The degree of prefabrication will increase, especially among our customers – if only because of the shortage of skilled workers.
3. 3D printing is an exciting area for us. We care less about the printer and more about the ink. In additive manufacturing, for example, we are currently working on a prototype of a rain catchment basin.

Plaster of paris is not digital. How important are digital business models in your future plans?
We have invested in two start-ups in the software sector, with minority stakes, we have invested in the high-tech start-up fund and the fund of the Technical University of Munich. We’re still at the beginning, but we’re also a software company.

In what way?
We currently have 50 and soon 100 employees, including in Munich, who work on customer-centered solutions, including good software for architects.

All parties are now focusing on the issue of climate change. What is Knauf’s CO2 balance?
40 percent of an economy’s CO2 emissions come from the building sector. At Knauf itself, the individual divisions have set their own goals. For example, Knauf Insulation has committed itself to producing zero landfill waste by 2025 and reducing the number of new plastic packaging by a further 25 percent. The most efficient way to reduce CO2 is to insulate buildings. We have an energy-intensive production process for insulation materials, but the benefits of insulation are enormous. In principle, sustainability is not difficult for us: gypsum is a natural product and can be recycled infinitely. In Denmark we now get 30 percent of the raw materials from the dismantling of buildings.

Are you renaturing the mining areas?
My grandfather did that. We are renaturing in such a way that flora and fauna are better than before.

“I am convinced of diversity”

After Manfred Grundke’s planned departure, you will now have two new colleagues who, as non-family members, will also become managing partners. What is the advantage of such a solution?
The role of general partner at Knauf is something special. He’s supposed to be a thoroughbred entrepreneur. Everyone is liable with their private assets, which creates an additional level of energy and consistency.

What is your experience: Do some managers shy away from it? Maybe those from abroad who are less familiar with family businesses?
The colleagues found it very attractive to become a general partner at Knauf. But: You also value well-engineered governance. You ask: Can we fall back on robust decision-making processes?

Since when has Knauf had robust governance? In the past, your father and uncle were considered the kings of Iphofen, that sounds more like monarchy.
We have had them for more than 20 years. There is a shareholders ‘committee and general partners’ rules of procedure.

How many female members does your shareholder committee have if the management is already completely male?
Of the 13 members on the Shareholders’ Committee, three are currently women.

Did you also have female applicants when you were looking for general partners?
Yes, I would have welcomed it if we had found a woman, but admittedly that is difficult in our industry.

For listed companies with equal co-determination, it is already the case that with 2000 employees or more they should be led by a woman …
The topic is no less relevant for family businesses. I am convinced of diversity. There are better decisions then. You have to sweep the stairs from above.

Can you make it on the levels below?
As a global company, we are culturally very diverse. At USG there are significantly more women at all levels, with Stephanie Holdt also a German woman as CFO.

Mr. Knauf, thank you very much for the interview.

More: The Knauf shareholders talk about the largest takeover in the company’s history

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