Carlyle Sets Sights on Europe with $1 Billion Effort

The Carlyle Group, a prominent US private equity group based in Washington DC, is poised for a determined onslaught on the European market. After establishing offices in London, Paris, Munich and Milan during 1997, it held a $500 million (ecu 460 million) closing in December for Carlyle European Capital Partners, its first European fund. Carlyle expects to take the fund, which is targeting buyouts, restructurings and privatisations, to $1 billion and will cap it at $1.4 billion.

In the US, where Carlyle is particularly noted for defence and aerospace investments, the firm boasts a high-profile GP line-up that includes former Secretary of State James Baker and former Defense Secretary Frank Carlucci.

In Europe too, Carlyle has attracted its share of political luminaries: John Major, former UK prime minister, former Chancellor Lord Howe and Karl Otto Pohl, former president of the Deutsche Bundesbank, will sit on its European advisory board alongside several former and current senior executivesfrom industrial groups including Aerospatiale, BMW, Hoffmann-La Roche, ICI and Nestle.

The composition of the advisory board signals the different investment focus Carlyle will adopt in Europe.

Whereas in the US, its reputation rests principally on aerospace and defence investments, these industries are expected to account for smaller proportion – perhaps a quarter – of its European portfolio.

Carlyle anticipates channelling the balance into other sectors, principally healthcare, telecommunications and food.

The former head of the bread and bakery acquisition unit of Artal Europe, Jean-Pierre Millet, who heads Carlyle’s Paris operation, is an experienced investor in the food industry. His former colleague at Boston Consulting Group, Hans Albrecht, who later became a partner at German buyout house IMM, heads up the Munich office.

Principal Leslie Armitage has moved from Washington to head the London office, where she expects to spend at least two years overseeing the establishment of Carlyle’s overall European business. A chief for the Milan office has also been recruited, but Carlyle has not yet officially announced his identity.

Carlyle partner Bill Conway said the bulk of the first closing total came from investors new to Carlyle, which has previously tapped a largely domestic investor base.

He declined to name investors in Carlyle European Partners, but according to press reports, Bank of Austria, Bank of Scotland, Banco Espirito Santo, Credit Agricole Indosuez and Commerzbank are included among the participants, along with US institutions including Bankers Trust, Chase Manhattan, Citicorp and a number of major public and private sector pensions.

Despite the lack of a European investment track record, Carlyle appears to have assembled an impressive investor line-up on the strength of its US performance to date.

Bill Conway said although Carlyle will focus less closely on defence-related investments in Europe than in the US, the European defence sector should offer the group some exciting opportunities.

The consolidation process now gathering momentum is similar to that seen in US industry during the mid-Eighties and onwards. Few of Carlyle’s potential competitors in Europe will have comparable experience of mergers and acquisitions in the defence sector, according to Bill Conway.

At the outset, though, Carlyle will take minority positions in its defence-related investments to avoid being perceived by the market as a “foreign military raider”, Bill Conway said.

Carlyle’s ambitious plans for Europe form part of a broader programme of international expansion as the group aims to achieve global investor status.

Last year, Carlyle recruited Steven Orlins, the former head of Lehman Brothers Asia, to set up offices in Hong Kong and Singapore, prior to the projected launch of a $1 billion fund for Asia.