Greenbriar: Pandemic highlights investment opportunity in supply chains

Noah Roy, managing partner at the industrials-focused firm, talks to PEI about the firm's $1.7bn raise and the importance and fragility of supply chains during the coronavirus crisis.

Greenbriar Equity Group last week held the final close on its fifth fund, raising double the amount of its predecessor vehicle.

The New York-based buyout firm collected $1.68 billion for Greenbriar Equity Fund V against a $1 billion target after less than six months in market, in an Evercore-advised process. Private Equity International caught up with managing partner Noah Roy to discuss this.

Congratulations on your fund close. What was the fund’s hard-cap, and how much more do you think you could have raised?

Roy: “If you pick the right companies and right situations, the opportunities are enormous”

We launched Fund V with a $1 billion target and no formal hard-cap. We knew we had very strong support from existing LPs but launching into a virtual fundraising environment for new investors was uncharted waters. We are very gratified by the depth of support we received. We had demand substantially in excess of what we closed on, and we could have sized up the fund materially. But we sought to strike the right balance between taking the opportunity to expand our fund size responsibly and strengthen our LP base while staying focused on what has driven our historical success. It’s worth noting that the Greenbriar team also made a very meaningful commitment to the fund, consistent with our focus on strong alignment with our partners.

What’s the makeup of your LP base, and is there anything new about your LP base this time around (compared with Fund IV)?

We have been very fortunate to have the loyal and longstanding support of a group of world-class LPs. We have some concentration in the foundation and endowment community who were early supporters. For Fund V we were able to expand geographically, adding some blue-chip corporate pension funds, insurance and consultants in the US, and expanding with some high-quality investors in Europe and Asia. We were especially pleased to accomplish this when the process was entirely virtual, and in this context we believe endorsements from our LPs and broader network were all the more important in attesting to our approach and reputation.

What were some of the questions LPs had before committing to Fund V, which was obviously raised and is investing during unprecedented times amid the pandemic?

Performance amidst covid was certainly top of mind. The resiliency of our portfolio during covid, the strong overall organic EBITDA growth we achieved in 2020 despite an unprecedented macro backdrop, really resonated with the LP community. Our low loss ratio and conservative underwriting have always been core to our strategy, but the current environment really brought that differentiation to the fore.

Also, with growth so central to driving private equity returns and LPs picking among various strategies and sectors, LPs really wanted to dig into the specific value-creation drivers in the historical portfolio – how we identify and underwrite growth; what is special or unique about our value-add; what operating and other resources we bring to bear; the ‘Greenbriar Playbook’ that drives repeatability of that success; how we have grown and evolved as a firm. LPs really wanted to understand our operating and company ownership model, and to get comfortable that the team and strategy really sat at the core of our returns – not just that we benefited from an up market or external factors.

What are Fund V’s performance targets in terms of multiple and IRR and how do you aim to achieve these?

I would just say that our two current funds, Fund III and Fund IV, are both solidly top-quartile across both net MOI and net IRR, and that remains our focus.

In terms of achieving that, I come back to growth. Our historical returns have been driven primarily by underlying EBITDA growth in the portfolio and, on average, we have achieved EBITDA expansion of about 80 percent during our ownership period. Simplistically, we look for market-leading companies with great management teams that are exploiting meaningful secular growth opportunities. We are very cautious on more cyclically geared opportunities and we have a strong bias for situations where our specific resources and expertise and relationships can be of real help in accelerating growth. We also use buy and build as an important lever – Funds III and IV completed about 80 add-on acquisitions in total.

Last, I would point to our particular success partnering with family- or founder-owned businesses. A majority of our investments over our history have been made outside a competitive process involving business owners who really care about their partner. We have had a lot of success coming in to take a fresh look and identifying opportunities to inflect growth.

Is there anything unusual about Fund V’s structure in terms of fee/carry?

No, it has very customary terms.

What are the sectors you’re most excited about investing in and why? 

We are industrial sector specialists to start and have been throughout our history, so we’re already more focused than many firms. One of our largest focus areas is on companies that provide supply chain and logistical support and facilitate the movement of people, goods and services across the industrial and consumer economic landscape. We are particularly active right now in logistics, distribution and related services. Covid has shown both the essential role of supply chains but also their fragility and need for investment.

Some sectors have seen real disruption while others have seen a dramatic acceleration in growth. B2C e-commerce, for instance, has seen a rapid acceleration in its penetration curve and we expect that is a pretty durable and structural shift. But more broadly, we are seeing a number of historically analogue business models across the supply chain either being disrupted by, or needing to embrace, technology. If you pick the right companies and right situations, the opportunities are enormous. We think it sets up well for a focused specialist strategy like ours.

Noah Roy is a managing partner at Greenbriar. He joined the firm in 2008 from Goldman Sachs, where he was head of the aerospace and defence sector within the investment banking division