Carl Bradshaw

#22 Carl Bradshaw, Goodwin

Fund Shack
Fund Shack
#22 Carl Bradshaw, Goodwin
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Carl Bradshaw is a partner in the law firm Goodwin’s private equity group. He has advised European, American and Asian private equity sponsors on cross border LBOs, public to privates, co-investments and special situations.

We talked in late March 2021 about deal appetite going into the second quarter of 2021 new deal-making processes and the rise of the special purpose acquisition company. You can watch the video version (with speed controls and bookmarks here).

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Ross Butler:

You’re listening to Fund Shack. I’m talking with Carl Bradshaw, a partner in the law firm. Goodwin’s private equity group. Carl is based in London and has advised European American and Asian private equity sponsors on a wide range of transactions, including cross border elbows, public to privates co-investments and special situations.

Carl, welcome to fund Shack it’s mid-March and restrictions are slowly thawing away in Europe, fairly slowly in the UK though. How are you seeing the private equity market from a transaction perspective? And how would you characterize sentiment at the moment?

Carl Bradshaw:

Yeah, so Ross we’ve been sort of in this state however you wish to describe that for nearly a year now, the conclusion that we can say is that the industry is certainly resilient is certainly adaptable. Absolutely. There was a rush this time, last year for people to focus on keeping people safe and you know, wrapping up their portfolio companies, frankly, to all the things that were going on, making sure they had enough liquidity to survive initial shutdowns and lockdowns but very quickly people that to operate in this environment, whether that was, you know, using technology to get deals done, to meet people, to talk and look and evaluate or, or just in terms of actually finding opportunities. And you know, within months we were back into transactional activity certainly in, in, in the middle market where you had, but it’s a combination of processes that had been put on hold that were sort of pushed through and we’re ready to come to market either just to close off remaining elements or, you know, from start, start to finish, we saw that.

Carl Bradshaw:

And then you had a sort of new wave of, of deal activity where it was either very technology focused or very healthcare focused. And that has really sustained itself through to, through to now. I think obviously in, in some sectors, there’s, there’s been a pause and people are waiting to see what the vaccine does, what the government support measures do and when, and how they get withdrawn in order to assess sort of investment appetite. And obviously we need to see how consumers react, to those measures as well. But certainly in certain sectors, the market’s heating up and we’ll say pretty buoyant buyout activity, whether that’s funded through equity checks from the sponsor directly, or backed up with debt either coming in from, from still, still the bank, but increasingly so from the credit funds yeah, it’s, it, it sent me that to be seen. And in some cases we’re seeing some really competitive situations, but for the assets in the sectors, I mentioned that, you know, people want to, to deploy capital into

Ross Butler:

Those sectors, presumably being tech, healthcare.

Carl Bradshaw:

I think those are it certainly as you get into the middle market and, and above at the lower end, you’re seeing some life science you know, as a variation on that, on the healthcare theme. And even, even within technology, I think it’s, it’s not everything not everyone’s sort of pouring money into driverless cars. I think there’s been some quite a lot of thinking has been done on what segments are going to be most robust and have proven themselves most robust three, three dash periods, enterprise software, data analytics, and things of that nature are certainly still, it’s still very popular with, with PE sponsors.

Ross Butler:

It’s increasingly difficult to think of tech really as a sector in sofar as pretty much every business has. It is having to deal with some kind of tech enabled conundrum right now.

Carl Bradshaw:

Yeah, I think, I think that’s right. I mean, there’s, there’s often been a hesitancy for private equity to to market themselves as being into the tech sector. Right. And I think people, investors into be fathers might be a little bit scared off by some of the very high valuations that you see in the tech sector. And whether that growth the businesses like you, you have the opportunity to invest into is going to be sustainable. You know, other there’s other features of the tech sector, whether it’s the dynamics with founders and entrepreneurs or you know, the, the, the lack of the excellence of process that P has really become accustomed to that has stared at people traditionally away from deploying lots of private equity capital into that sector. But you’re right. I think it would be inaccurate to just group group all of the different segments in, in the same bucket.

Carl Bradshaw:

I think private equity has come around to the idea that yes, technology is in all parts of our life and tech enabled businesses means need to sort of find capital in order to grow in order to survive in, you know, the, the most dynamic areas of the economy today. So yes, there’s more and, and also, I guess there’s been some good good examples of success in that area, whether it’s fish there or Thoma Bravo or Hg, people have gone there, have taken the plunge in and done very well after that. So, certainly there’s no there’s not the same hesitancy as there may have been 10 years ago to, to invest in that area.

Ross Butler:

It’s strange given that their venture capital cousins live and breathe technology, I think Goodwin’s sometimes operates at the intersection of venture capital and private equity from what I’ve read.

Carl Bradshaw:

Yeah, very much so. I mean, we, we see that as our sort of strategic priority is to be as close to those two worlds as possible because we’re only seeing convergence and not divergence. And I think the, the peas are moving down into that space. One to just get smarter on technology and the pace at which it is you know, transform, transforming business. And they, they want to get an early early look to, I think the P exits or venture capital backed businesses exiting to pay. It’s just becoming more and more common. And I think even, even you know, in 2020, we sort of doubled on the amount of PE exits that were there the year before. So it is an area that people see that the opportunity, and I think getting, getting smarter is, is definitely something that is high on the agenda for our clients fit for Goodwin. We just say as part of the lifecycle model that we’ve tried to build around companies from a very early stage three, all the way to where they’re going through a strategic process, be that M and a selling out to P or, or going through it to the problem,

Ross Butler:

Going back to lock downs. Has anything changed in terms of the process of doing deals in the last year that you think possibly might end year in the, in the longer run? Yeah,

Carl Bradshaw:

I think, I mean, the obvious answer to that is travel. I think people will get on fewer planes and meet in person on a, on a less frequent basis. I don’t think it will go all together. There’s definitely a lot to be said for I guess both the, both the engagement that needs to be had between a management team and its potential new sponsor to, to get those people together is going to continue to be important. And I think, you know, people, people that are, that I talked to on the investor side are just, you know, itching at the opportunity to get in a room and have those conversations with the management teams or prospective management teams, I think on the advisory side whilst we’ve been efficiently through, you know, remotely and three screens definitely when it comes to getting things done, we would say some, some speed gains and just general sort of ability to get things over the line by being in the same, in the same room with each other.

Carl Bradshaw:

So I do see that coming back, but certainly the use of technology based on the outside intelligence begins early and has been happening from people’s bedrooms or studies, you know, for the last year that’s, that’s definitely a game to enjoy. And, and Adam was already the case, to be honest, there was a lot of technology starting to get deployed in whether that’s through data rooms, whether that’s through you know, the legal technology we use to sort of save street contracts and spit out findings. I think that that has accelerated over this process. And so we’ll certainly see, see that remain whether the remote what I’ve heard of virtual drones being used to do physical inspections, and obviously that, that saves some costs. And if you’re not fully committed on doing the deal, you might, you might think about that. But I think getting people together and on, on the ground is probably gonna come back as, as soon as it can.

Ross Butler:

It’s funny. Cause most people took a technology in terms of efficiency gains, but I guess was something like, you know, the, the classic late night deal negotiation high, it’s a highly collaborative exercise I assume. And just being with people is probably preferable, maybe even less tiring, even if it is late at night.

Carl Bradshaw:

Yeah. I see you had this, let’s not forget the psychological aspects of doing a very demanding job on it, on a deal. Yes, absolutely doing it physically in person with others helps. But yes, just, just getting through that process. I think what we’ve seen is whilst as, as well thought through, in as structured as they possibly can be in this very uncertain environment, there they are generally taking longer just to, to execute and getting, you know, getting the answer from someone who’s not knowing the room, we’ll just take extra time. And then in putting that to a conversation that moved on three or four paces can be difficult. So yes, I think that there’s merit to getting people together, certainly from, from our perspective as a, you know, we’re very much in a Prince trip culture as having people around from the outset of their careers that they can learn and see how these things are happening, I think is, is an important aspect as well.

Ross Butler:

Has anything changed in terms of contracting given the advent of lockdowns, I’m thinking, you know, provisions to give buyer’s assurance is that of thing.

Carl Bradshaw:

Yeah. So there’s a few sort of pieces of that, I guess. Initially there was great concern about, well, you know, the certainty of a deal actually happening. So if you had the leverage on the, on the buy side you would want, you know, potential out to the deal, if the lockdown or some sort of pandemic related aspect made for a materially different investment proposition and the one you thought you were signing up to three months earlier. And so certainly those conversations have been had, I would say by and large because the market is still very much, you know, lots of capital to deploy low interest rate environment. Sellers are invariably resisting those sort of deal uncertainties that you know, but that gives the buyer the right to walk away or renegotiate the deal. So that, that’s definitely one aspect that there’s been more conversations around and it very, very much turns on the sort of dynamic of a buyer and seller in any given situation.

Carl Bradshaw:

I think Ben, in terms of due diligence, your you’re seeing more scrutiny placed, not just on the underlying sort of the business and how compliant it’s been during this period, whether that’s the health and safety aspect of how it’s looked after its people or whether it’s made use of government support measures, you know, furlough schemes, deferral of taxes government loans, in some instances, you know, there’s, there’s definitely a lot of sensitivity to make sure businesses got that right, or where they haven’t, where when you remedy can be can be pursued. And then as I saw, aside from that, I think investors are looking through these businesses and out to their end customers, right? So instead of just supply to supply chain continuity, which has always been important, but come under the spotlight in the last 12 months, people are saying, well, you know, is that supplier or is that customer, what, what’s their solvency situation?

Carl Bradshaw:

Are they going to be able to continue? Can we get access to that information and diligence and evaluate it as part of this in entire cycle? So yes, there’s been a number of changes, but at the same time, it’s very sector specific. I think in the, where there’s competition for assets, we’re seeing very similar treatment given to businesses. You know, we will look at the financials, we’ll take the ties on the accounts. We will take a a large amount of comfort from re-investment on the part of the management team into the new deal. We will rely on insurance as far as possible, and we will present in a competitive auction, a very contract, but you know, the salaries are not going to have to do much thinking about as to whether it’s within, within the level of comfort or not. So yes, in some circumstances the pandemic has changed terms, but in, in other ways now, you know, we’re, we’re very much in similar territory of, of getting deals done on, on a seller favorable basis.

Ross Butler:

In addition to traditional private equity deals, you’ve got fair bit of experience in the distressed market, corporate distress fields. Are you, are you seeing, or do you anticipate an uptick or an increase in that kind of transaction?

Carl Bradshaw:

Yeah, so for me, those types of deals, whether that’s, you know, out and out distress or a special opportunities, special situation for private capital to be deployed into is different. Another type of private equity deal. It may find its way into a different area of the capital structure, but very much were using similar sort of private equity mindset and deal technology to, to get the deal done. I think the, the latest on the market is that actually there’s not a ton of activity right now. So in 2020 we probably saw cases that had been in a bad state of affairs, you know, financially distressed or underperforming for some period of time prior to the pandemic. And the pandemic was the final straw. Certainly, you know, retail, casual dining has had a very tough time in the last 12 months.

Carl Bradshaw:

And we’ve seen some of that. So we reacted on the restaurant and loan to own restructuring where the lenders to control. And recently we just closed the Clark’s choose transaction where Asian, Asian, private equity invested into, you know, an iconic British brand. So we’ve seen some of it, but I think that all came out of a relatively small window last year. Those sort of existing cases that needed support, I think by and large a lot of businesses have got by to this point through the government support measures, whether that’s, you know, loans or, or just the fact that business rates haven’t been there or at the same levels as, as they were previously. So I think we’re waiting to see, I think the expectation is absolutely there will be a further wave of distressed businesses, whether they make it through this difficult period or not remains to be seen.

Carl Bradshaw:

I think there’s the, there’s a race now between getting the vaccine out, getting consumer confidence to the level, it needs to be, to restore those businesses to somewhere near where they were previously, are people going to all of a sudden June go out and buy things, go out and eat in, in the places where, where they used to and offset against well, w where is the cash coming from to sort of reboot the working capital of these businesses? Right? So they have used the treasure chest to, to get through this period in order to go forward and compete. They’re gonna need likely injections of capital. Now, in some cases that may come from existing shareholders who have deep pockets. In other cases, they may tend to the public markets where currently there is good appetite to put money to work. But in, in many cases, I think they will turn to, you know, private credit, private equity, alternative investing and certainly that’s something where we’re building up for and hoped to, you know, in the, in the nicest possible way be well-prepared to fight, find capsule solutions for these businesses to take them forward.

Ross Butler:

Well, that’s a perfect segue because I did want to ask you about specs, which is obviously all the rage, but really only in the U S to a great degree. But last year was huge and this year is even bigger. Pro-rata do you have any views on the prospects for special acquisition vehicles

Carl Bradshaw:

And get really closely? I mean all the teams in the U S are absolutely inundated with spot instructions on inquiries. And just to, to kind of break that down a little bit, these are essentially the code in the U S these blank check companies. So they’re put together by a management team or a sponsor effectively as a shell company that is then put to the public market investors, pull money into these vehicles, and then the vehicle goes out and finds it at target a cloud product company that then takes to the public market. So it’s almost like a reverse IPO for those private companies. And it’s attractive to investors because they almost get a sort of single purpose, private equity vehicle, right. It’s something they can back if they know the sponsor, they know the management team they can put money towards it.

Carl Bradshaw:

And then, you know, they, they back these management teams and sponsors to go out and find it a great private company. And, and it’s also attractive sometimes. So they’ve project companies looking to raise finance, you know, to fund it it’s next stage of growth because it takes what is otherwise seen as an arduous listing IPO process out of the equation. And they only have to do one negotiation with the spec management team or that all the sponsors. So it does bring that execution advantage, I think for, for public strategy. We haven’t seen all that much of them in the UK. They have existed. I mean, there’s businesses like the engineering giant Melrose, that was a spec from 2003. So they, they are around, but, you know, on a comparable basis. So in the U S there’s something like 223 spots listed this year already.

Carl Bradshaw:

And in the UK, there were for all of last year and, you know, a grand total of 300 million was, was raised through that process it in the UK. So there’s a huge disparity. And I think there is definitely an effort on the part of London stock exchange and other sort of market majors to look at that and assess, you know, are, are we missing out on this opportunity? And I think that they’re coming under pressure because you’ll see homegrown talent that would otherwise, you know, potentially IDEO in the UK or other European markets either look instead of the us and, and potentially even B B not the victim, but the target of these U S rates backs, right? So it’s, it’s a great investment opportunity going into the North American capital markets instead of staying, staying in Europe. And I think there’s two, two particular pressure points that is and, and it all comes down to the nuances between the, the UK capital markets regime and which is similar in some respects and elsewhere in Europe and what they currently have in the U S so one of these is the redemption feature.

Carl Bradshaw:

So in, in the us, you, you, as an investor, put your money into this spot, the spot goes out and finds a target, and then comes back to the shareholders and says, do you want to, do you want to have to make this acquisition or not? So it’s put to a vote at that at that time, you can either vote no vote. Yes. but you can also you know, redeem your investment. So if you lose the value, you’re still not locked in and you can get your money out. And someone else who likes that, that investment can come in in your place. So there’s that advantage that kind of transparency over the, the acquisition and the liquidity that, that you get through that. And then the other the other feature of the UK regime is that because it’s considered as a reverse listing effectively at the time, the SPAC makes the acquisition or announces the acquisition the shares in that spot or suspended for traded and they’re suspended until a perspective on the deal is, is published and there’s no deadlines.

Carl Bradshaw:

So we still have 2017 rates back. That perspective didn’t have it hasn’t been done in that deadlines not being, or that deliverable hasn’t been met. So it, it does create that uncertainty for investors, which I think, you know, looking at it objectively means, you know, w if you had the choice, would you prefer the us model or the current UK model? I think, you know, people are voting with their feet and, and investing into, into the U S backs. I mean, that, that particular feature is there for investor protection. I think when the announcements made that can be a lot of volatility in share price. And so having that, the suspension for a short period of time may make some sense, but it’s certainly something that, that people are looking into is, is a reform needed. There was a review conducted recently by Lord Hill and delivered to the government and at the start of the month, that really looked into all of those things as a, as a sort of holistic EK listing review. And certainly those two features were, were underlined as well as the things that were probably most, most in need of some sort of reform in order to increase spank activity in, in the UK. And the threat is not just coming from the U S but I think now you’ll start to see European markets moving pretty quickly in it. I would say at the current rate, you know, by the end of this year, we could see much more activity in the European markets on that front,

Ross Butler:

Any, any ones in particular.

Carl Bradshaw:

So Amsterdam, I think, has made noises in the last few weeks where they are readying themselves to, to, you know, make, make a viable and attractive destination for the specs, the visual specs to be raised.

Ross Butler:

So if I understand you correctly, it sounds like the, the, the Americans would, their redemption system is created kind of a, a market based optionality for investors. Whereas in the UK, you have more of a regulatory based freeze on everything. And is that a reasonable interpretation? Yeah,

Carl Bradshaw:

But that’s exactly right. I think it’s the, the, just new liquidity, but also the, the, the involvement in that acquisition decision, almost that you get in the U S that you’re not saying encouraged me here in the UK you know, this bank has the options of the acquisition to a vote, but it’s not a regulatory requirement in the same way as it is in the us. Yeah. That is a key distinction.

Ross Butler:

Yeah. It’s, I find it fascinating because, I mean, obviously the number of public companies has been falling for a very long time. And presumably this is going to put that into, into reverse. And it must say something about, I mean, you said at the start where you implied at the start, I think it’s, to some degree, an arbitrage against the cumbersome nature of IPO processes, would you say yes.

Carl Bradshaw:

Yeah. I think there’s definitely a benefit to the, to the company, not having to go through that IPA, do the road shows with multiple investors, you know, in that sort of preparatory stage and just goes straight from a to B you know, suddenly be a public company, having negotiated a deal in a set of terms with you know, with a sponsor. I think that’s, that’s very attractive for companies.

Ross Butler:

Tell us a little bit about Goodwins and your personal aspirations for activity in, in private equity, in a kind of near or medium term, what would you like to see happen and what do you want to get involved in?

Carl Bradshaw:

So Goodwin’s been around in Europe for just under 10 years, but we’re originally a us headquartered firm. We’ve grown internationally into Europe and across into Asia about 1300 lawyers in total, and really we have a very focused strategy. So we’re trying to play in the most dynamic areas of the economy. Private equity is absolutely core to that strategy alongside technology, life science, real estate and financial institutions. And you know, we’ve, we’ve scaled out incredibly quickly in the last year within private equity in London in particular. So we’ve now got upon a bench of about 10 partners, associates another, another 20. And we’re trying to be deep, not just in that transactional capability, but across all areas that touch the private equity ecosystem. So we’ve got one of the largest fund formation things in the market. We’re building out in tact, we’re building out in debt we’re building out in restructuring. So we can really be that go-to sort of destination firm for complex premium private equity work.

Ross Butler:

Carl, it’s been a pleasure talking with you. Thanks very much for your insights this morning.

Ross Butler:

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