In 2006, Crown Castle International purchased Global Signal, a cell tower company in Sarasota, Florida, for $5.7 billion. CCI is the nation’s largest provider of wireless infrastructure. As a result of the sale, investors made more than 12 times their original investment, with the Global Signal team making $100 million. Former president of Global Signal, David J. Grain, led the charge during the company’s incredible four-year turnaround.
Although this was a monumental achievement, for Grain it was only the beginning. In 2007, he built Grain Management L.L.C. with $5 million of his own money, venture capital from General Catalyst Partners, and Sutter Hill Ventures. Over the next three years, Grain Management went on to acquire 50 cell towers.
Now, Grain Management (No. 7 on the BE Private Equity list with $900 million in capital under management) has grown into a powerhouse, with two funds: Grain Infrastructure I and II. The company acquires, builds, and owns wireless infrastructure assets across North America. It also holds wireless spectrum licenses and issues spectrum-backed securities. That’s why we’ve named it the 2015 black enterprise Financial Services Company of the Year.
Building Grain Management
Raising the $109 million he needed to build his business and accumulate funds took Grain almost two years–a task made no easier by the 2009 financial crisis on Wall Street. Grain, undeterred, decided to take his money-raising efforts down a nontraditional path: the academic investment community. He met with more than 180 people, including heads of foundations, colleges, and university endowments.
“The approach they take is a reasonably intellectual one. If you’re fortunate enough to attract their capital, it’s a great endorsement that, OK, you’ve passed the test and have some level of credibility,†says Grain.
Former Duke University investment manager Ed Hutchinson worked with DUMAC–a professionally staffed investment organization run by Duke–when the decision to invest in Grain Management was made. Hutchinson was as impressed with Grain as Grain was with the academic community.
“The reason we elected to back him is he’s just one of those people that, for lack of a better description, had ‘it.’ You just knew he was going to be successful and [that he] was someone you, whole-heartedly, could trust to do the right things. This was clearly demonstrated throughout his career,†says Hutchinson.
(Continued on next page)
Seeing Diamonds in the Rough
In addition to seeking nontraditional investors, Grain sought out what many might consider an unusual clientele. Grain Management not only handles thousands of towers across North America, for leading wireless carriers including Verizon and AT&T, but it also works with the U.S. government, servicing federal, state, and local agencies. “What I like about the government portion of my business is that you have a very good credit tenant and it’s easy to get low-cost capital. They’ve got a triple-A rating,†says Grain.
However, doing business with the government is not always easy. Obstacles, such as bureaucratic ones, pose challenges for corporate entities. Grain often receives kudos from others in his industry for the goals he’s been able to reach, but Grain has a different perspective: “I’m not sure if I get kudos for focusing on the government end. It just seems to be lower hanging fruit. I don’t think a lot of people focus on it.â€
MAKING HISTORY
Despite his success, Grain says he began to feel that Grain Management’s venture capital business model, which is based on large influxes of cash aimed at getting fast returns, wasn’t the best way to achieve his objectives. A private equity model, with its extended time-horizon, seemed like a better fit for building and developing.
“The capital structure associated with the private equity fund–its prescribed fees and success payments, was a much better structure for the type of assets I wanted to invest in,†says Grain. “Private equity seemed to be, at least at the time, the most appropriate capital formation process around the assets I was investing in.â€
In 2013, Grain Management made history when it acquired $287 million in wireless spectrum, the frequency used for wireless communication, from AT&T and Verizon Wireless. It was the largest minority spectrum deal in U.S. history.
“Spectrum, which I would call ‘real estate in the sky,’ is infrastructure as part of the mobile ecosystem. Understanding its importance in that ecosystem, as a derivative of the other things there, is part of my process. I didn’t take any giant steps to move into this space. I stayed within the same species of investment type and characteristic. I’m really trying to stick to that at this point,†says Grain.
Using Your Leverage
Grain was also the first to securitize spectrum, creating a $330 million bond offering backed by spectrum versus other assets, such as mortgages or treasuries.
“I was able to create a package of securities that I sold on Wall Street, to very large institutional investors, at a price that looked cheap relative to what that credit should justify. The difference between what I was charging my tenant, my leasee, and what I was paying to the investors that participated in the financing provided a gap. That gap was profitability,†says Grain.
(Continued on next page)
In 1984, after completing his studies at College of the Holy Cross in Worcester, Massachusetts, Grain went on to earn an M.B.A. from the Tuck School of Business at Dartmouth. He began his career on Wall Street at Drexel Burnham, under the tutelage of Michael Milken.
Milken, known as the “junk bond king,†helped define leveraging by planting corporate money in the financial markets. He served two years on a 10-year prison sentence for violating U.S. securities laws. Grain says Milken, as well as others at Drexel, showed him that wisely leveraging money is powerful.
“Having the opportunity to work there was a life-changing experience. Understanding what’s possible was really ingrained in that experience,†says Grain.
Grain also valued the fact that race wasn’t an issue with Milken.
“One of the reasons I joined Drexel, was that Drexel Burnham backed Reggie Lewis to buy TLC Beatrice from KKR. That told me that this was an opportunity to work with people where it didn’t matter what color you were or where you were from. It was about getting the deal done.â€
Chris Stobaugh, partner and chief financial officer of Grain Management, says the way Grain handles the inherent challenges of being an African American businessman sets a good example.
“He’s had challenges where people have placed limitations on him. You either get defeated by them or you say, ‘I can do better.’ He just goes out and does better,†says Stobaugh.
After leaving Drexel Burnham in 1990, Grain remained on Wall Street for most of the next decade doing deals at Morgan Stanley. In 2000, he left Wall Street when AT&T asked him to run the New England region of AT&T Broadband. After taking the division from $936 million in annual revenues to $1.6 billion, he left for Florida and joined Global Signal in 2002.
Strong role models
Grain is the youngest of seven children, all of whom have gone on to achieve great success. His siblings include a neurosurgeon, a computer scientist, and a teacher.
He and his family lived in the Bedford-Stuyvesant section of Brooklyn until his early teens. His father, Walter Grain, used his experience as a U.S. postal worker to start a package delivery business. His grandmother, Elizabeth Shaw, was also business-minded. She was a landlord and owned several tenement homes and brownstones in Brooklyn in the 1960s.
“Seeing how she dealt with people, where she showed sympathy and mercy on people who were late with their rent and had financial challenges, had a big impact on me,†says Grain.
(Continued on next page)
When he was 13, Grain’s mother and father moved the
family to Martha’s Vineyard. It was here that he met Ken Louard, who is now director of business development at Grain Management. Louard says Grain showed affinities for business success at an early age. “I remember we were about 18 and meeting at the beach. Most of us guys were there looking for girls. David showed up with a man who was No. 3 or something at Dean Witter. He was networking while we were looking for girls,†says Louard.The Right Team
Grain says he’s been successful because he’s been blessed with the “right†team, at work and at home.
“A lot of times it’s just knowing that they’re there. It gives me the confidence to take things on and work to figure them out,†he says.
The father of two says that before he and his wife, Lisa, got married he told her, “We’re either going to the moon or we’re going down in flames. You have to decide whether this is what you want to sign up for.â€
She joined him on his journey to the top and together they’ve gone on to help others through programs such as the Grain Fellows program, which prepares students for college and offers guidance on everything from etiquette classes to SAT prep.
Looking forward
The Grain Management train presses on full-steam ahead. The company recently acquired assets from regional digital wireless communications service company NTELOS Holdings. Details of the deal have not been disclosed, but it includes 85 towers with $2 million in cash flow. Grain says he also plans to create another fund.
“As I look for investment opportunities, I’ve listened to something that Warren Buffett has said: Investment committees should be odd numbered. Three is too many.â€
While the train may stop with Grain, the tracks he’s laid, through decisiveness, vision, and treating others with respect, makes it one that others are happy to climb aboard.