Edscha, Marklin insolvent

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Two household-brand insolvencies have put the spotlight again on private equity firms. The troubled automotive sector, which saw cash flows drop by up to 60% in the last few months, reported the first casualty with Frankfurt-based automotive supplier Edscha AG, a Carlyle Group portfolio company. In December 2008, Carlyle provided EUR20m in equity. Carlyle acquired Edscha in 2003 for EUR185m in equity, with more than EUR300m provided in debt (February 2003, page 20). In 2005, Carlyle refinanced Edscha for EUR60m (see page 49).

The other company facing insolvency is the sad ending to the Marklin saga. The iconic toy maker, based in Goppingen, went into insolvency almost simultaneously with Edscha and at its 150th anniversary. The situation became inevitable after Landesbank Baden-Wurttemberg and local savings bank Kreissparkasse Goppingen did not extend their credit lines of EUR50m. The case attracted a lot of attention in the German press because owners Kingsbridge Capital and Goldman Sachs hired Alix Partners as advisers on the turnaround of the company, sparking prolonged conflict between advisers and the company's management. It is claimed that Alix had been charging 'overblown fees' which exacerbated the difficult situation of Marklin without yielding enough results to save it.