COVID-19: Pandemic Fundraising Insights and What Lies Ahead for Private Equity in 2021: Conversation with Tom Burger, Gridiron Capital

In this Ropes & Gray podcast, asset management partner Debra Lussier and private capital transactions partner Paul Van Houten interview Tom Burger, managing partner and co-founder of Gridiron Capital. They discuss Gridiron’s experience fundraising during the pandemic, and what lies ahead for private equity in 2021.

Transcript:

Debra Lussier: Hello, and thank you for joining us today on this Ropes & Gray podcast. I'm Deb Lussier, an asset management partner in the Boston office of Ropes & Gray. Joining me today is my partner Paul Van Houten from our private capital transactions group. We also have a special guest joining us today: Tom Burger, managing partner and co-founder of Gridiron Capital. Tom, thanks very much for joining us. Before we jump into the substance of today's podcast, would you like to give us a brief introduction of yourself and your firm?

Tom Burger: That would be great, Deb – I think the two are very closely linked obviously. When you look at my background, I've now been investing for over 26 years. And my early career really started as a child working in and growing up in two family businesses. In addition to that, I spent time in GE's Manufacturing Management Program. I also worked in the early-90s with Boston Consulting Group in helping them to really help U.S. companies get established in China, and so very good experience and exposure. And then getting into private equity and investing back in 1994 – so I've been investing now for over 26 years. One of the first things that I did when investing is get introduced to Paul Van Houten at Ropes & Gray, and I've been working with Paul and Ropes ever since then. So it's been a very fun and successful relationship, and I can't imagine working with anyone else that could bring the value they did, especially to this fundraise. So thank you both very much. 

Paul Van Houten: Thanks, Tom. It's a certainly been a great partnership over the years, and we look forward to continuing working closely with you and Gridiron into the future.

Tom Burger: We really look forward to it as well. 

Debra Lussier: In this podcast, which is a part of a series of podcasts on issues of interest to buyout funds, sponsors and investors, we are going to hear from Tom on Gridiron's experience fundraising during the pandemic, and we're also going to pick Tom's brain a bit on what lies ahead for private equity in 2021. So Tom, let me start with your most recent fundraising. Gridiron IV held its final closing on December 1 with commitments in excess of $1.3 billion. Several closings were held during the pandemic, including two in March during the height of the lockdown, at least in the Northeast. We'd love to hear from you as to how the pandemic impacted Gridiron's fundraising, and whether you made any adjustments to your fundraising process? 

Tom Burger: Deb, I think that's a great question because as we now look back, it really had differing impacts at different points. So when we look early on, we had a lot of momentum moving towards final close – it caused some people to want to accelerate and come up and get their on-site done, and others really to put on the brakes. I think the biggest issue is nobody understood what the pandemic was going to mean – they didn't understand how long the timing of coming out of it, and they didn't understand the impact to business and investing. And so, that caused, I think, some people to be cautious early on, and others I think felt that maybe this would pass quickly and so they could kind of get back to business as usual. I think by the time we got to late-May and June, people understood that this was not going to be something that was over quickly and they were going to have to adjust how they went about things. And so, I think the best thing that we did is we showed a lot of empathy. One of the things Gridiron really prides itself on is our unique culture – our respect for everybody we come in contact with and our focus on individuals, and using that background that I discussed that we have to really align with and be empathetic to investors, or management teams and companies. So we spent extra time... we would do Zoom calls and provide information over and over again – whatever it took to really get the prospective LP comfortable. I think that time together and getting to know each other and that respect and that empathy for them, and what they were going through and what they needed to contend with really helped us shine, and got them excited, not only comfortable, but excited about being part of Gridiron. 

Debra Lussier: Many of your limited partners have been invested with you really since the beginning, but I know you also had some new LPs invest with Gridiron for the first time in Fund IV. Can you talk with us about the process with first time LPs during the pandemic, and in particular, how did you replicate the on-site visits and other opportunities for a new manager to really, as they say, look you in the eyes and really get to know you? 

Tom Burger: I think I'll talk to both of them because the existing LPs obviously we've known each other, we've had a relationship, there's been a lot of in-person interaction, and really at the beginning of the year just prior to COVID, we were all together to celebrate our 15 year anniversary here at Gridiron. So what we saw as we went through the pandemic and throughout the year, our performance both on our portfolio company performance, but also our ability to invest in new businesses and add-on companies really, I guess, shined in both regards. For our existing LPs, it really made them want to come back and increase allocations that they had made earlier in this Fund. For our first time LPs, those things all really kind of filled out how they felt about us and our performance. I think what we did really well in addition to just spending extra time with them is we connected the dots so that they could speak to other LPs that had been existing, were back in this Fund and who they knew, and so they could rely on somebody they knew well to leverage that as a reference. 

Paul Van Houten: Tom, turning to deals – as you know, buyout activity was up in Q3 over 10%. As we look into the fourth quarter and the first quarter of 2021, it looks like those high activity levels are continuing. What do you see ahead in 2021 in terms of the deal environment? 

Tom Burger: We were able to invest in four great platform companies this year. In total, not just with Fund IV, we did 12 add-on acquisitions throughout the portfolio, and so as we look forward, we were very bullish on 2021. We see more opportunities. The issue I think it's going to be a crowded market for companies that are on the market for sale, and so we think there's going to be a lot of opportunity, a lot of hard work. We think 2021 we'll see levels both in numbers and dollar volume that outpaces anything in recent history, so we're very bullish on 2021 as we go into it. 

Paul Van Houten: Tom, I'd like to ask you a few questions regarding your response to the pandemic. Gridiron is headquartered in New Canaan, Connecticut. What percentage of your team is working in the office these days, and what percentage is working from home? 

Tom Burger: There there's a lot to that because from day one and very early on, I think we were one of the first to move into a COVID environment type approach. We're most concerned with not only our employees, but all of our portfolio companies and their employees’ health and safety – so that was job one, top-priority from the very beginning, and continues to be as we sit here today. So we did a lot in engaging the team and putting the cadence in place where everybody could interact very efficiently, their concerns/questions could be answered, and we could bring best practices to the table. We have been operating on a voluntary basis here at the office since the day after Memorial Day and we continue to operate in that regard, and we'll do so at least until February 15. We’ve found with our technology and where we stood prior, and putting some of these processes in place, we've been very efficient. Nothing beats being together and meeting people and working with each other in person, but we've been able to make the most out of a tough situation. 

Paul Van Houten: Going forward, do you envision Gridiron investment professionals working more from home after the pandemic, and do you anticipate changes to your and the team's travel schedule post-pandemic? 

Tom Burger: Those are discussions that are ongoing and we'd like to go ahead and take the best of what we've been through and adopt that, but also, taking the best of how things worked before. So I think at the end of the day, you're going to look backwards, but you're also going to come up with a plan, and an operating plan and processes and cadence that is going to be best for your firm. We're doing that for Gridiron and we think it's really important, so I don't see more physical travel. I think we'll all look and question whether something can be done very efficiently and effectively through video, and we'll have to make those decisions as we go forward, but we're not making a commitment either way at this point. But we are going to look for best practices and make sure we operate like that going forward. 

Paul Van Houten: So Tom, you've already said you're very bullish on 2021, but on a cautionary note, in your opinion, what is the number one concern everyone in private equity should have as we turn the page into 2021? 

Tom Burger: We've been through, all of us, a very difficult year, and I think the one thing that kind of shined through is that we were able to figure out, all of us, we were able to figure out ways to operate safely and really putting our employees' health first, and getting through the pandemic in a good way. So I think the biggest risk actually is whether it's federal, state, or local governments not taking into account the balance that really should be happening, and maybe overstepping and trying to shut things down when we've already proven we can operate pretty efficiently and effectively, and still keep people safe. So that's my biggest concern. 

Debra Lussier: Tom, thanks very much for joining us and sharing your insights. 

Tom Burger: You bet. I appreciate the time, and again, love the relationship. Let's hope 2021 is a year without as many challenges, but I think we all learned a lot and got through 2020 really well. So thank you – thank you both. 

Debra Lussier: That brings us to the end of the podcast. Paul and I would like to thank all of you for joining us for our discussion with Tom today. If you have any questions regarding the topics addressed or anything else, please don't hesitate to get in touch with Paul or me, or whomever you already have a relationship with at Ropes. You can also subscribe and listen to Ropes’ podcasts wherever you regularly listen to podcasts, including Apple, Google, and Spotify. 

For more information or to contact Tom Burger, please visit his bio on Gridiron Capital’s website or email him directly at tburger@gridironcapital.com.