Carlyle’s Europe PE chiefs reveal priorities for 2023

The firm’s Europe heads discuss portfolio diversification and how to manage evolution and generational change.

Headshots of Carlyle executives Marco De Benedetti, Jonathan Zafrani and Gregor Boehm
Carlyle Europe PE heads: growing next-gen talent within the firm

How are private equity firms finding opportunities for growth in Europe, the continent that has been hit hardest by a global slowdown and a deepening energy crisis? That’s the question Private Equity International posed to the Carlyle Group’s senior executives in Europe when we caught up at the end of last year.

The consensus was that 2023 could be “interesting” from an investment point of view.

“There are a number of challenges, like the financing market, but on the purely macro side I think we are prepared for the worst. There could be some positive surprises,” Marco De Benedetti, managing director, partner and co-head of the Carlyle Europe Partners (CEP) investment advisory team, told PEI.

He added: “We have tried to price for the worst. I’m a bit more optimistic that, relative to everything that we hear, maybe things will not be that bad.”

According to De Benedetti, Europe benefits from its currency, and will continue to do so. “Europe is a relatively high export-based economy, certainly where the component of export is much higher than North America or other large economic areas. We believe this is an important element that makes Europe attractive today.”

That glimmer of optimism seems to be making an appearance amid the gloom; several industry voices have said recently that the eurozone’s economic slump may not be as deep as previously thought. Speaking at the World Economic Forum in Davos last week, Christine Lagarde, president of the European Central Bank, said the economic prognosis for Europe is “a lot better” than originally feared, although it’s still not going to be “a brilliant year”.

Latest numbers from Eurostat and investment banks predict expansion rates of 0.1 percent for both the first and second quarter of 2023, up from -0.4 percent and -0.1 percent, respectively, in the previous forecast. The main reasons behind the new forecast include lower energy prices, the reopening of the Chinese economy and resilient data from Europe’s industrials sector.

On trend

In spite of a tougher macroeconomic backdrop in recent years, Carlyle’s Europe buyout team has managed to deploy consistently in about five or six investments annually in companies positioned to benefit from the tailwinds driven by one – or more – of its four macro growth trends. These are digitalisation, healthcare, emerging global wealth, and sustainability and climate change.

Jonathan Zafrani, managing director, partner and co-head of CEP, said: “The investment themes we pursue are not entirely insensitive to the macroeconomic changes, but we think they show resiliency in difficult times. Companies will likely continue to invest in technology to improve their performance. Healthcare is a priority. Consumers and governments are investing more money in renewables.”

When it comes to the emergence of global wealth, China’s restart will likely provide some fuel to consumption demand, he added.

Asked about the main investment risks in 2023, De Benedetti said a major extension of the war in Ukraine is a concern. “If it gets worse there, then it could be ugly.”

Over the last 12 months, CEP’s acquisitions have included Spanish company Grupo Garnica Plywood; Ocmis Group, an Italian manufacturer of advanced irrigation systems; and Theramex, a speciality pharmaceuticals company focused on women’s health. It sold Cupa Group, a Spanish producer of natural slate, to Brookfield Asset Management in February 2022.

Carlyle was about 75 percent deployed for its €6.4 billion Carlyle Europe Partners V fund as of end-September, according to its third-quarter 2022 results. It is said to be seeking as much as €7.5 billion for its sixth dedicated offering for the region – per a Bloomberg report in January last year – although neither De Benedetti nor Zafrani could be drawn on further details on the fundraise. It has raised roughly €3 billion as of end-September for its fifth dedicated tech fund for Europe, which has yet to hold a final close.

Looking ahead, CEP’s execs are set to build the team for the future and nurture younger talent.

“This is a very competitive market where we believe you need to innovate all the time,” said Gregor Boehm, chairman of Europe Private Equity at Carlyle. “In three years, we will look different than we do today. The organisation is getting bigger, but we try to stay entrepreneurial.”

That means having to carefully manage evolution. “Don’t rock the boat,” he added.

De Benedetti noted that generational change across the private equity industry is “a little tricky” at the moment: “That’s an important task that we are faced with as leaders. I want to make sure we grow that next-generation talent inside our organisation.”

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