Carlyle’s De Benedetti: Brexit is causing wait-and-see syndrome

The UK referendum has had an impact on the investment firm's business, according to Marco De Benedetti, co-head of European buyout.

It is not every day you see a Carlyle Group executive wearing sneakers around the office. When Private Equity International sits down to speak with Marco De Benedetti via video link from his Milan office, the investment firm’s co-head of European buyout is proudly sporting a clean pair of white trainers from Golden Goose Deluxe Brand – an Italian fashion company Carlyle acquired last year.

Marco De Benedetti

De Benedetti’s enthusiasm for the firm’s portfolio companies is palpable. He refers to Carlyle’s style of “transformational investments” – the firm’s strategy of adding value. By the time the firm sells a business it is different to what it had originally bought.

The mood in Europe has been positive over the last 12-18 months, De Benedetti tells Private Equity International. “The addressable market for PE is getting bigger and bigger.”

Buyout activity in Europe, which rose last year, remains around 42 percent lower than pre-crisis levels, according to data from Bain & Company. The largest speed bumps affecting European investment activity – Brexit – is causing a “wait-and-see syndrome”, De Benedetti says.

“What we have seen in a number of companies is that [they] postpone decisions,” he says. “The typical attitude is, let’s see how it plays out. They start to postpone decisions, investment decisions, M&A decisions.”

Carlyle’s portfolio companies in the UK and potential targets have had a tendency to slow down on investment decisions since the Brexit referendum, De Benedetti adds.

“When you do that, you have two important impacts. If you stop investing in the business, next month you will not see an impact. But a year later you will see it,” he says. “The fact that today, the UK, relative to the rest of Europe, is among the poorest performers, while it was among the best performers, is also impacted by that slowdown in new project investments.”

While this slowdown in overall M&A activity is temporary and may last for at least the next 12 months, it has “certainly had some impact on our business,” he says.

The UK has historically accounted for around 25 percent to 30 percent of Carlyle’s European portfolio exposure in its four Carlyle Europe Partners funds, alongside Germany and France at similar exposure levels. De Benedetti expects those levels will stay the same.

The global investment firm is understood to be fundraising for Carlyle Europe Partners V which has a €5.5 billion target – an almost 50 percent increase on its predecessor, Carlyle Europe Partners IV, which closed on €3.8 billion.

De Benedetti declines to comment on fundraising.

Carlyle’s Europe buyout and growth funds invested at least €2 billion last year, including Golden Goose and Belgium’s ADB Safegate, which works with airports and airlines to improve efficiency, safety and environmental sustainability.

In Europe, potential clouds on the horizon such as extremist parties winning national elections or a banking crisis could affect the investment environment in a continent that has “continuous risk of something going wrong” due to its myriad individual situations, De Benedetti says.

This multiplicity also means the region as a whole is well prepared to weather potential storms.

“Europe as a whole has matured and is much better equipped to manage in these situations,” he says. “The fact that some players in our industry have focused on strong market and sectoral diversification is also something which is very positive.”