As Christmas eve approached last year, Germany’s savviest dealmaker thought he’d pocketed a special gift.
In the early hours of December 24, Alexander Dibelius struck a gentleman’s agreement with Oliver Reichert, the chief executive of Birkenstock. CVC Capital Partners, the buyout firm where Mr Dibelius is a managing partner, was set to buy the iconic German sandal-maker for more than €3.5 billion ($4.2bn).
For CVC, Birkenstock had all the ingredients of a promising investment: a brand that resonates with its eco-warrior credentials and rich heritage, coupled with the allure of untapped growth in markets like Asia. After several years, CVC would pump up Birkenstock, go global and then move on. Mr Dibelius, 61, stood to make the deal his crowning buyout.
But within weeks of that late December accord, the carefully choreographed pact between the two unlikely partners began to unravel, to the surprise of CVC and advisers working on the deal. Instead, Mr Reichert switched over to L Catterton, a private equity firm that flies under the radar but boasts a powerful backer: LVMH chief executive Bernard Arnault, who became Europe’s richest man thanks to a nose for brands he can supercharge in the engine room of his French luxury emporium.
In a matter of weeks, L Catterton sealed the deal to buy Birkenstock for more than €4bn, relegating CVC to the role of jilted bride. For Mr Dibelius and his advisers, endless rounds of poring over the numbers and the back-and-forth with Mr Reichert ended with nothing more than a feeling that CVC may have been strung along by a shrewd chief executive and his bank, Goldman Sachs, which Mr Dibelius previously ran in Germany.
This story is based on interviews with several people with knowledge of the negotiations or close to the parties involved.
In retrospect, the manoeuver was vintage Mr Reichert, a towering American football player attuned to aggressive moves. A former journalist, Mr Reichert is credited with turning around Birkenstock after joining the company almost a decade ago.
At the time, business was lacklustre, in no small part because the three brothers – Christian, Stephan and Alex Birkenstock – had shown little talent in running the family company they inherited from their father Karl.
Mr Reichert got to know Christian Birkenstock through a mutual acquaintance. By 2013, the family scion, realising he was a better owner than manager, decided to take a punt: Mr Reichert would take over with a select few outside executives to run the company.
The new co-chief executive used his linebacker skills and pushed through the brothers’ exit from management as well as a buyout of Stephan at a fraction of the later purchase price.
While Birkenstock is among Germany’s oldest companies – the roots of the business date back to 1774 – Mr Reichert understood that it perfectly matched the zeitgeist of the modern consumer: green chic, Made-in-Germany durability and a design language that defies age or gender. Birkenstocks are equally at home on a Paris catwalk, a California beach or in a drab hospital ward. Even German supermodel Heidi Klum cooked up a collection.
Mr Reichert carefully curated collaborations with partners such as fashion designer Rick Owens. The company sold 23.8 million pairs of shoes in the financial year through September 2019, which helped sales rise 11 per cent to €721.5 million. That’s more than twice as much as Birkenstock sold when Mr Reichert joined.
With success came a more lavish lifestyle. In interviews, Mr Reichert displayed his love for the finer things in life, like checking in to the plush surroundings of Claridge’s Hotel in London. The Birkenstock brothers, for their part, spent more time in Kitzbuhel, the upmarket Austrian ski resort where Mr Dibelius also owns a chalet.
A former heart surgeon, Mr Dibelius joined Goldman Sachs in 1993 and advised on some of the world’s biggest deals, including Vodafone Group’s acquisition of Mannesmann in 2000. He switched to CVC in 2015, where he helped take over companies including watchmaker Breitling.
Other Kitzbuhel neighbours include the Wirtgen brothers, who had sold their late father’s namesake road-construction company to Deere & Co in 2017 for €4.bn – a number that impressed the Birkenstocks. If paving machines could mint billionaires, then surely so could the humble sandal, their thinking went. And Mr Reichert would be the man to make it happen.
The chief executive had always embraced a challenge. In early 2018, Birkenstock stopped selling its shoes on Amazon.com after accusing the online retailer of failing to police its platform for counterfeits.
“Never fight the bear in his cave,” Mr Reichert told a conference in Berlin days after pulling the plug on Amazon. It was a public David-versus-Goliath battle that won Mr Reichert plaudits from Big Tech-averse consumers and cemented his reputation as a chief executive who relishes a good fight.
Mr Reichert also had a personal interest to control the Birkenstock sale, not least because it possibly meant saving his own skin. At CVC, doubts had crept about whether Mr Reichert was in fact the right man to take Birkenstock to the next level. He might have successfully turned around the business and kept the bumbling Birkenstock brothers at bay, but could he truly transform the footwear maker into a global brand?
Such scepticism about his role at the company didn’t go undetected by the chief executive. And it considerably dimmed Mr Reichert’s enthusiasm to sell to a new owner where he couldn’t be sure about his future. Besides, Mr Reichert had long dreamed of selling to the House of LVMH rather than a faceless financier.
But despite a loose connection with Bernard Arnault and his 28-year-old son Alexandre, Mr Reichert couldn’t score a direct sale to the elder Arnault’s kingdom.
The personal link did, however, lead him to L Catterton, which was looking for new consumer-oriented assets. Back in 2016, Greenwich, Connecticut-based Catterton had merged with private equity operations backed by LVMH and Mr Arnault’s family holding company, with the French side owning 40 per cent.
By August of last year, Birkenstock had quietly signed on Goldman Sachs as adviser, and the US bank set up a meeting at an upmarket hotel in London’s Mayfair district between Mr Reichert and Mike Chu, L Catterton’s co-chief executive. Mr Chu purchased a pair of Birkenstocks before the meeting, though he didn’t wear them to see Mr Reichert. The encounter turned from a one-hour introduction into a four-hour meeting of the minds.
Whatever unspoken animosity might have existed between the two alpha males Mr Reichert and Mr Dibelius, the chemistry between the Birkenstock chief executive and the down-to-earth Mr Chu was positive from the get-go.
The secret Mayfair meeting was followed by more discreet conversations later in the year, both in person and on video calls between the Birkenstock and the L Catterton teams. Members from the L Catterton camp headed out to Goerlitz on the German-Polish border, where Birkenstock makes most of its sandals, and by late January, the two sides felt good about striking a deal.
Meanwhile at CVC, Mr Dibelius and the advisers were beginning to wonder why their calls and text messages to Mr Reichert weren’t being returned. The line to Birkenstock had suddenly gone inexplicably dead.
Goldman Sachs told CVC that Birkenstock wasn’t yet satisfied with the offer. Encouraged that all was not lost, Mr Dibelius set to improve portions of the fully-financed offer and stood ready to sign a deal as pledged.
But the Birkenstock boss never returned to the table. Toward the end of January, CVC learned that L Catterton would be granted exclusivity, all but shutting out the competition. What looked like a done deal less than a month earlier had crumbled to dust.
The L Catterton team flew into Munich around February 24, and two days later, Mr Reichert signed the papers in a conference room above the historic Cafe Luitpold. After nearly 250 years in family hands, Birkenstock announced a new majority owner in L Catterton, as well as a direct investment from Bernard Arnault’s family.
In a parting shot, Mr Reichert laid out the logic for choosing L Catterton: with the American-French firm, Birkenstock had found a partner for the next 250 years, he told German business daily Handelsblatt about the accord.
Without mentioning a name, Mr Reichert snubbed what he called “a mere financial investor with nothing else in mind than rapidly milking the company for cash.”