Charlotte Lawrence, an investor at The Carlyle Group, talks to Rachel Bridge at Drax about technology, building relationships and the importance of having the right management team in place
Across the life of one of our investments, there are five to ten big decisions that every management team makes that really move the business forward, says Charlotte Lawrence, investor at private equity firm The Carlyle Group.
These decisions might be around acquisitions, changes in go to market strategy, investments in new products, new market opportunities, joint venture relationships, or senior hires, for example.
She says: “If you look back on any successful deal there are a relatively small number of choices that were made, which really drove everything else. We work with management to make sure that we collectively do as good a job as possible on making those five to ten big decisions.”
As these decisions need to be made together, it is vital that the PE house and the management team share an investment thesis for the business and view of the market, Charlotte says.
“These choices come up across the life of the investment which is why it is so important that the PE house has a shared long-term thesis with the management team for where the business is going. Those decisions are difficult to find consensus on if the investor is driving towards a different goal than the management team.”
For this reason, she believes management teams and investors need to build a strong relationship before entering into a deal and ensure they share a vision of the future of the business, and warns that sell-side advisors can sometimes fail to understand the importance of this element in their rush to secure a deal.
She says: “You need to be having these conversations so that you are aligned on what the next part of the story is going to look like, but that can get lost in an advisor’s desire to deliver a completed transaction as quickly as possible. It is a bit like getting married and not having time to chat about whether you want to have kids or not.”
Charlotte joined the technology fund at The Carlyle Group in early 2010 and during her time there has seen technology move from being a standalone sector to something that has an impact on almost every business. She says: “Technology has become increasingly material to every sector; it is driving more and more business models, and is increasingly becoming not just a sector in its own right but also a fundamental function of all other businesses.”
Her team looks for businesses which have EDITDA of between £5 million and £20 million, with differentiated intellectual property and a strong product/market fit.
Having the right management team in place is the key to a successful deal, she says: “It is always difficult to invest in a business when you don’t believe in the team, whereas it is very easy to invest in a business when you do. Occasionally investors do buy a business where they don’t fully believe in the team but they don’t tend to buy those businesses for very much. If you are paying up then you need to believe in the team and that they can take the business to the next level.”
Charlotte always looks for three key characteristics in a management team: “First, having a deep understanding of their own business. Second, a sense of ambition and desire to build something bigger. If there is a lack of ambition within the team and we feel that we would want to push the company harder than they would, it is not the right fit for our fund. The third thing that really matters is authenticity and honesty. We commit large amounts of our capital and time into businesses so we need to be able to trust what the management team are telling us. That trust is intrinsic to the relationship.”
She clearly loves working in private equity, saying: “I think we are extraordinarily fortunate to work with passionate, intelligent people who are highly motivated to grow and strengthen the businesses they lead. If we can be part of the journey to unlock the potential of some of these companies, that is incredibly rewarding.”
Drax sector lead: Ruby Sheera
Partner, Technology and Tech-enabled businesses
Tel: 0203 949 9555