Can Carlyle Grab the Buyout Crown in Europe?

After a slow beginning, it's now chasing the biggest deals

With its links to the U.S. political Establishment and its big defense-industry investments, Carlyle Group has become the private-equity firm that antiwar protesters love to hate. Thus it was no surprise when on Apr. 7 police arrested nearly 100 demonstrators for blocking the entrance to its New York City office. But there wasn't a whisper of protest in Europe on that same day, when Carlyle announced one of its biggest deals ever outside the U.S.: a planned $1.76 billion acquisition of FiatAvio, the aerospace unit of Italy's Fiat.

Indeed, Carlyle has put down a surprisingly faint footprint in Europe. True, it has invested more than $1 billion on the Continent since opening its first European outpost in 1997. And two years ago, it brought aboard former British Prime Minister John Major as European chairman, just as it has lined up a roster of U.S. rainmakers that includes former President George H.W. Bush. But most of Europe's multibillion-dollar buyouts have been snapped up by Carlyle rivals such as Kohlberg Kravis Roberts & Co. of the U.S. and Cinven of Britain.

Now, Carlyle is ready to move to the head of the pack. The FiatAvio bid follows a flurry of deals over the past few months, including Carlyle's initial foray into European defense with the purchase of a 33.8% stake in British defense group QinetiQ for $320 million. Jean-Pierre Millet, who runs Carlyle's European buyout team from Paris, says the group moved slowly at first. That gave it time to build up contacts and assemble a team of more than 50 investment specialists. "It took time to crack this market," says Millet.

After committing more than 90% of its first $1 billion European buyout fund, Carlyle is raising money for a new fund, which could top $3 billion. That will be used to fund deals such as the FiatAvio transaction, which is expected to be completed this summer. Carlyle has two other European funds, one for technology investments and another in real estate. "Any big deal that goes on in Europe now, you can be sure Carlyle will be at the table," says Ricky Morton of, which tracks private-equity investments from London.

Europe is a key test for Carlyle, even if the Old World accounts for only a fraction of the $15.8 billion it has under management worldwide. With former IBM Chief Executive Louis V. Gerstner Jr. at the helm since January, Carlyle is looking to replicate its success outside the U.S. But Europe's a tough market. Other big U.S. private-equity firms have moved across the Atlantic, and there's plenty of action by homegrown firms as well. Cinven and CVC Capital Partners, based in London, have raised $4 billion each for European buyouts over the past two years. And the region is brimming with smaller players such as Eurazeo in Paris and Investindustrial in Milan, firms that have an edge in financing deals due to their close ties to local bankers and business leaders.

Carlyle also needs to show it can pass the big test: producing fat returns for investors. So far, it has exited only one of its European investments, a 40% stake, purchased for an undisclosed sum in 1999, in the owner of French newspaper Le Figaro. Without giving details, Millet says investors made a "very good" return when the stake was sold in March, 2002.

Despite its history at home, where it has invested in such defense plays as LTV and United Defense Industries, Carlyle has no intention of becoming a European defense heavyweight -- partly because touchy governments are likely to shut down any deal that lets a major defense contractor fall into the hands of foreigners, Millet says. But steering clear of defense may not be a bad thing. Protesters on its doorstep is one sign of clout Carlyle doesn't welcome.

By Carol Matlack in Paris

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