In Germany, American investors have lately been snapping up just about everything. Last week New York-based Blackstone Group, one of the biggest buyout funds, paid 1.4 billion euros for 32,000 rented apartments from struggling Hamburg-based WCM Real Estate. In May, Texas Pacific bought Grohe, Europe's largest maker of bathroom faucets, for 1.1 billion euros. Last month Kohlberg Kravis Roberts--the corporate raiders of "Barbarians at the Gate" fame--took over Duales System Deutschland, a money-losing, nonprofit recycling monopoly, for 975 million euros. In KKR's eyes, it seems, German trash is gold.

What's going on here? As German investors stay mainly on the sidelines, American "vulture" funds are snapping up more and more of the country's assets. In the first three quarters of 2004, they invested 12 billion euros, or 84 percent of all private equity. Ten of the 20 biggest corporate mergers and acquisitions this year involved U.S. financial investors. AMERICA IS REMODELING GERMANY INC., the daily Frankfurter Allgemeine headlined last week, even as it reported the latest dismal projections for German economic growth: just 0.8 percent in 2005. What do American vulture funds--or "robber knights," as the Germans call them--see in Germany's slumbering economy that the locals don't? Is the American rush to buy German assets the capitalist version of a going-out-of-business sale--or might it signal the start of a German turnaround?

To be sure, there's been a worldwide boom in private equity investments, fed by the increasing liquidity of American funds. In the 1980s and 1990s, companies like KKR helped break up America's many badly run conglomerates, taking neglected noncore businesses off their hands, polishing them up and finding more suitable owners. In Germany these inefficient conglomerates lived on, protected by easy cash from German banks and local shareholders' low expectations of returns. Splitting up companies and reselling the parts was anathema to the cozy system called Deutschland AG--the "Germany Inc." that the Allgemeine mentioned. That the robber knights were usually foreign capitalists only made their image worse.

How times have changed. Today's heady pace of dealmaking amounts to nothing less than the dismantling of Germany Inc. German banks no longer give easy credit, companies are spinning off far-flung holdings and the country is opening to foreign investors as never before. Cash-strapped governments are starting to sell off Germany's vast public-owned sector, from real estate to hospitals. This year American funds Cerberus and Fortress took over two mismanaged public-housing companies with more than 100,000 units, while U.K.-based Terra Firma paid 1.1 billion euros for Tank & Rast, the formerly state-owned network of autobahn rest stops. To boost profits before resale, these companies often go through wrenching transformations, including worker layoffs. "When private equity arrives, it means cutting costs," says economist Dorothea Schafer at the German Institute for Economic Research in Berlin. But the result is often a stronger, more focused company that ends up hiring, not firing, German workers.

Perhaps the corporate vultures descending on Germany show what's right about the country's economy, not what's wrong. "The country is full of good technology and world-beating products," says Hans Ostmeier, Blackstone's head of German operations. "It's usually just the management and financial experience that's lacking." Unlike France or Italy, whose governments remain hostile to foreign takeovers, Germany is now virtually open to the money and expertise outsiders bring. That makes optimists of people like Ulrich Weber, whose Berlin-based Apellas fund has a pile of billionaire George Soros's money to invest in what he says is undervalued German real estate. "Smart people trust Germany to make a rebound," he says. For their own sake, Germans had better hope he's right.

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