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Wednesday, January 22, 2020

Renk’s sale: social capital at risk

by Monica Talender (writer), , December 06, 2019

In Volkswagen’s new strategy, there is no space for outliers. Along with a commitment to electric technology, the group is following another mantra: if it’s not cars, we’re not interested. Showing how seriously it means to follow through with this notion, Volkswagen put the renowned transmissions specialist, Renk, up for sale. Despite labour force resistance, and the strong possibility of negative effects for the Bavarian business, Volkswagen is in talks with Rheinmetall, the defence industry goliath. This could spell the end for Renk’s multi-sector ambitions, which until now have been garnering industry-wide recognition.

German family capitalism with social capital

Started in 1873 by Johann Julius Renk, over 140 years Renk has built a reputation as a multi-faceted engineering firm with world-class capabilities in numerous sectors.

Renk’s engine transmissions for tracked military vehicles are renowned; most notably those for main battle tanks, which are ultra-compact with an unconventional U-shaped configuration alongside the engine, being designed to take up less space.

Renk’s engineers also have their hands in an array of submarine and ship propulsion systems, as well as highly-specialised wind turbine gears – for which they are well-respected in the renewable energy sector for having solved consequential technical challenges– and systems for hydro power stations.

The longstanding position of the company as a leader in each of its fields has resulted in decades of collaboration and reputational development. Not only are the company’s products regarded as exceptional, the status of its staff as benchmark innovators is well-established.

If employee satisfaction is a metric of a good working culture, then Renk enjoys strength in this area as well. Online workplace review sites put Renk as an employer in the upper echelons when compared against other companies in the same field. Similarly, employee approval of its CEO, Florian Hofbauer, and CFO, Christian Hammel, is extremely high. This atmosphere likely contributes to the positive promotion of the company among its peers, enhancing its social standing.

The company has been consistently hitting strong numbers, with operating return on sales in the double digits over the past few years. However, when operating a successful business, intangible social capital can be just as valuable. The network of a company’s workforce, and the connections of the enterprise itself within its areas of industry, provide important technical leads, exchanges of ideas, and avenues through which to discover vital business opportunities. Business is, and always has been, about relationships.

Destruction of intangibles : Renk at risk ?

One risk of a business being undervalued, is that it is sold off at a low price without taking into account intangibles like social capital. Furthermore, selling at a low price can have direct negative effects on this asset, as others may well have less regard for the company when they see it has been relatively undervalued by an acquirer.

This is an entirely plausible outcome for Renk based on the current transaction that Volksagen’s supervisory board is considering. The potential acquirer, Rheinmetall, has developed a reputation for aggressive acquisition.

Although it is difficult to put a price on social capital, it has arguably been a significant component of the firm’s success, underpinned by strong German workers rights and activism. The different divisions within the Renk Group have come to rely on one another, together being leaders in their field. This might be one reason that the company has been making moves into training and support services, with a recent equity investment with the digital firm Modest Tree.

On the other hand, Rheinmetall has made dozens of transactions in recent years. Given the primacy that Rheinmetall places on its military industry capabilities, it has appeared to follow a tactic of maintaining or acquiring only component units of businesses that are relevant for military applications. There is the real possibility of closures should Rheinmetall follow this path with Renk, given the transmission specialists numerous non-military areas of industry.

But labour groups at Volkswagen have shown concern in the past over the possible impact this could have on employment at the firm, making moves to prevent such a sale.

"We do not see any reason to divest parts of the company. Renk is and will remain part of the MAN family," MAN's works council chief Saki Stimoniaris said in 2017, during the first attempted sale of Renk.

More recently, last year Volkswagen’s works council leader, Bernd Osterloh, stated that he would continue to block possible sales of specialist assets like Renk, which is now 76% directly owned by Volkswagen, instead aiming to bring about cost cuts through other means.

Between then and now, conditions at Volkswagen have changed and despite works council resistance, the sale is going ahead. This again raises the spectre of job losses at Renk, hitting the Bavarian region at a time when factory closures seem to be mounting. Added to this is the possible waste of Renk’s network and relationships, should it be cleaved, which would be unfortunate for the wider industry.



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