A Message to our Partners during the COVID-19 Crisis

Grain Management, LLC (“Grain”), a leading, Washington, D.C.-based investment firm focused on the global communications sector, sent the following message today to its partners to share Grain’s view of the world and its business during the current COVID-19 crisis.

A Message to our Partners during the COVID-19 Crisis

The “contagion effect” is an economic term that refers to the spread of market disturbances from one country or region to another — a domino reaction following a crisis (or a boom) that demonstrates the linkages and fragility of our global market.  Indeed, the advent of the internet has made critical infrastructure more complex, interdependent, and susceptible to disruption.

While history offers useful benchmarks — the 1997 Asian financial crisis and the 1929 U.S. stock market crash are two striking examples of the effects of contagion on our integrated global economy — the fact is that there is no way to know for certain the characteristics of such emergencies, man-made or natural in origin, before they emerge.  We can never be perfectly prepared.

At Grain, we continually revisit our own preparedness as a fiduciary and what it means to our team, our partners, and our community, and even more so in light of COVID-19 and questions we have received from you.  The Telecommunications industry is at the top of the list of critical services as measured by cross-sector interdependence, as essential as Power and Water (Source: Broadband Commission for Sustainable Development). This criticality imbues us with an important responsibility to model the most thoughtful and shrewd behaviors during these precarious times.  And as we continue to focus on performance, both at the Firm and portfolio company levels, we work to preserve and promote value.  We would like to share with you our view of the world now and what may be to come for Grain, our funds and portfolio companies in the coming weeks and months.

Of what can we be relatively certain?

Fundamental Product Demand.

The COVID-19 pandemic underscores the essentiality of connectivity and high-speed broadband to daily life.  The following are a few examples:

• More employees are working remotely, requiring access to company data, teleconferencing capabilities, and access to    what is happening in the world around them.
• Increased numbers of people are spending time at home, leading to elevated demand for e-learning and streaming capabilities for home entertainment, making internet plan upgrades and reduced churn more likely.
• At the enterprise level, we may see more connections for clients looking to manage cloud applications for remote workers and increased demand for virtual backup.
• Near-term broadband investment in critical Communications-dependent sectors (e.g., Government, Education, Healthcare, etc.) is likely to increase everywhere, and may be most evident in suburban and rural geographies where relative spend in these sectors is high.

Relative Resilience and Stability.

The long-term, contractual nature of cash flows generated by our companies provides an increased level of resilience during unpredictable times.  We have already seen broader infrastructure spending and increased government support, particularly in programs designed to make high-speed broadband available to all Americans.  Our portfolio companies have approximately $30 million of combined annual revenue from the federal Alternative Connect America Cost Model program, along with other regulatory support unlikely to be negatively impacted by market disruptions like COVID-19.

Long-term Value.

With lower churn and potentially more stable revenues, our existing and target investments may attract long-term capital from infrastructure investors currently over-exposed to other sectors, potentially increasing asset values in the medium- to long-term.

Where do we need to think and act critically?

Near-term slowdown is a possibility.

Delayed broadband investment and possible churn from sectors negatively impacted by local outbreaks or quarantines may depress growth, particularly amongst small-to-medium sized businesses in Hospitality, Tourism, and Retail.  Further, if employees or their families are unwell or if communities are quarantined, building new networks and connecting new customers will decrease in priority and increase in difficulty until such time when communities and families recover.

Supply Chain Challenges.

Companies may encounter supply chain constraints if quarantines extend, perhaps delaying device manufacturing and postponing network deployments. Industry conference cancellations could delay key industry standardization and harmonization processes.  A prolonged crisis could invite greater, utility-style regulation of the sector to avoid disruptions to critical services dependent on broadband.

What’s next?

The COVID-19 pandemic has given us the opportunity to reflect on the growing urgency and criticality of our business. The rapidly evolving health crisis poses unique challenges for our nation and for the world, and keeping our communities connected to life-saving information is of primary importance. To that end, in support of the new industry-wide Keep Americans Connected Pledge announced by the Federal Communications Commission on March 13, Grain is committed to enabling emergency access to our 600 MHz spectrum to address critical broadband needs during this pandemic.

As Grain observes and maneuvers around the risks, we continue to cautiously pursue growth both through expansion opportunities and value-oriented acquisitions. The availability of capital allows us flexibility to continue to build networks and service customers. The essentiality of 5G is not paused by disruption, but rather hastened along by our need to remain connected.  The upcoming C-Band Spectrum Auction, which could generate significant investment opportunity, is a prime example of the constant, exponential demand growth that exists in our industry.

We are deeply grateful for your trust in us to make prudent decisions in the current market environment.  Overall, we are heartened by the soundness of our investments and of the steps we have taken to manage risk.  As we move forward, we remain confident in our ability to respond quickly and efficiently to rapid changes and we will keep you apprised of our activities.

We appreciate your support and wish you and your families continued health.

Sincerely,
Grain Management

About Grain Management

Grain Management, LLC is a leading private investment firm focused on the global communications sector. The firm was founded in 2007 with the objective of bringing a differentiated approach to the industry characterized by expansive sector knowledge, rigorous analytics, and dedicated, in-house operating and financial professionals. Grain is directed by a highly experienced investment team with deep industry knowledge and a specialized skill set, marked by extensive operating history, quantitative and analytical proficiency, and regulatory expertise. For more information visit www.graingp.com.