Grain Management sees growing wave of activity, adds Craig Phillips to leadership team

Private equity enjoyed a record year in 2021. What’s in store for 2022? PE Hub reached out to a handful of high-profile PE pros to ask for their forecasts. This week, we’ll be running their answers to key questions, including: Which sectors offer the biggest opportunities? How will covid affect dealmaking? What about inflation? What role will ESG play this year?

Yesterday, we kicked off the series with insights from Pam Hendrickson, vice-chairman of The Riverside Company. Today, in the second installment, we hear from David Grain, the founder and CEO of Grain Management LLC. Founded in 2007, the firm invests in communications infrastructure and technology companies. Prior to founding the firm in 2007, Grain led Pinnacle Towers (later renamed Global Signal) from bankruptcy to a successful IPO, transforming it into one of the largest independent wireless communication tower companies in the world. Grain serves on a slew of boards, including Southern Company and Dell Technologies.

As one sign of Grain Management’s growth, later this morning, the firm will announce that Craig Phillips has joined as managing director and chief operating and growth officer. Phillips formerly served as a counselor to the Secretary of the US Department of the Treasury and previously held the role of managing director at BlackRock and at Morgan Stanley.

Here are insights from David Grain:

Will the dealmaking momentum continue in 2022? What forces are driving activity in PE-backed M&A?

Grain management has seen an uptick in deal flow over the past 12 to 18 months despite the unpredictability that the pandemic brought both to our personal lives and to the marketplace. That was not necessarily an intuitive outcome, but we have been glad to see the results both of our internal process rigor around sourcing, which we have developed over the past several years, as well as just market demand for the types of services that Grain provides as a telecommunications specialist. No doubt the federal infrastructure investment JOBS Act will continue to bolster dealmaking momentum in our arena in the new year. The public sponsorship of telecommunications growth in the US specifically, with over $60 billion dedicated to the space, is timely and we are excited to see both the organic and strategic opportunities that will stem from it.

Which sectors and types of companies will be especially promising in 2022?

We have benefited from increased reliance on global broadband connectivity and the growing digital marketplace as people have learned to work, live and learn online. We have seen minor undulations along the way, whether it be due to changing administrations, supply chain pressure or new disease variants. By and large though, we continue to see a growing wave of activity in our industry, and I expect we will continue to see this into 2022.

What challenges do you see ahead? What keeps you up at night?

Globalization is top of mind for us. We are in an era that simultaneously boasts unprecedented international cooperation, and significant levels of competition at every level of policy and the economy. At Grain, we see the opportunities here and ask ourselves, “How can we, as investors, clear the hurdles and take advantage of the rich potential that international strategic partnerships can bring”?  As an example, China is perhaps one of the biggest areas of opportunity, yet it’s also fraught with challenges. We’re deeply connected to China economically, but there are increasingly reasons for a strained relationship where our interests are not fully aligned. Moving closer to home, we have spent a fair amount of time in Latin America and Central America – this region remains quite active in terms of consolidation and growth in the digital infrastructure space. We believe this region is highly compelling in terms of the opportunities it presents. We believe we will continue to find success here in 2022 and we are focused on making the right moves strategically in this part of the world.

How will the hybrid work model affect deal origination and deal closings?

Being remote and working virtually did not negatively impact our ability to get deals done in the last year. In 2021, we closed on five acquisitions – platform investments and add-ons – and had three monetizations. I can only imagine that having more freedom and flexibility to come into the office and collaborate in person, traveling more and meeting with prospective partners and intermediaries, will only bolster the already strong momentum we have in executing on our investment strategy. I have a lot of confidence in the adaptability of our model as it stands today, as well as in the strength of our sector as a stabilizing force in the global economy.

The pandemic continues to be an unwanted constant in our lives; perhaps this is something that we will be living with and managing around for the foreseeable future. For Grain, that means a need for increased focus on supporting our teammates, bolstering our now virtual workplace culture, and staying tuned into the relationships we have built with clients and partners. We have paid special attention to the culture of our firm through periods of growth during the pandemic, and I expect that to continue to be the case into the new year.

How will PE’s increasing focus on ESG affect dealmaking in 2022?

We look very closely at how companies that we are pursuing impact ESG strategy as one of the inputs to measuring overall strategic fit. Our view is that it is very important to assess factors like supply chain impacts, cybersecurity and the potential new or improved services and infrastructure may have in narrowing the quality-of-life gap in the communities in which these businesses operate. The output of these assessments is incorporated into our view of valuation and gives us a real advantage in terms of how we think about long-term value creation. Minimizing or skipping ESG diligence is a huge risk factor reputationally and economically. Strong performers will continue to place the appropriate amount of attention on ESG related risks and opportunities in the future, and we appreciate the benefit this level of focus has brought to our portfolio.

What are you most looking forward to in 2022?

We have learned a lot about the importance of adaptability in the past year and a half. We are very excited about how we have come out of this period as a larger, more high-powered, more cohesive team than we were before. With the right health protocols in place, we are excited to be getting back into the office, and being in person with our colleagues, partners and friends. Normal life may be pushed out a little bit further than we had once hoped – it may be several weeks, it may be a few more months. However, we are thrilled to be getting back together and achieving our goals for the firm and for our valued partners.

Editor’s Note: Check back later in the week for our Q&As with: Zia Uddin, president, Monroe Capital; Brad Bernstein, managing partner, FTV Capital; and Beatrice Mitchell, co-founder and managing director of Sperry, Mitchell.