Peter Lehman - Granite Creek

0:09Peter Lehman: Welcome to Northstar's Private Equity Fast Pitch, and thank you for joining us on this journey into the high-stakes world of private equity, where bold ideas, big capital, and brilliant minds collide. In each episode, we sit down with the trailblazers shaping the industry. key leaders, CEOs, founding partners, and visionaries from top-tier private equity firms, influential limited partners, and investment banking powerhouses. These aren't just conversations. They're front-row seats into the strategies, insights, and personal stories from the thought leaders driving the deals that define markets and transform businesses.

0:57Peter Lehman: Whether you're a seasoned investor, an aspiring young professional, or just curious about the forces moving the global economy, you're in the right place. So get ready to dive into the fast-paced, high-impact world of private equity with your host, the podfather of private equity, Jeff Henningsen. Welcome to another episode of Northstar's Private Equity Fast Pitch. I'm your host, Jeff Henningsen. My guest today is Peter Liebman, co-founder and partner of Granite Creek Capital Partners. Peter grew up around a family manufacturing business that lasted 80 years and began when his great-grandfather started making engine gaskets for the Model T.

1:41He learned about manufacturing, taking care of people, and running a business walking the factory floor and around the family dinner table. That experience would ultimately shape the way he thinks about investing in founder and family-owned businesses today. But Peter's path into private equity was anything but conventional. After starting his career at Dakota Capital Partners, which operated inside Sam Zell's family office, Peter left private equity and started a professional car racing team. Over six years, he built it into the winningest team in this league while learning firsthand what it meant to generate revenue, make payroll, manage people, and operate a business.

2:22In 2005, Peter returned to investing and co-founded Granite Creek, where the original thesis remains largely intact today. Partner with dynamic entrepreneurs and give smaller businesses the capital and resources to grow. In our conversation, we talk about Granite Creek's flexible approach to equity and private credit, why Peter describes their role as being a CEO's greatest wingman, and what a true partnership looks like when things don't go according to plan. We also discussed some of the lessons Peter took from being around Samzell, the importance of being a professional opportunist, why the second best answer is a quick no, and how AI may actually make curiosity, communication, and critical thinking more valuable for the next generation.

3:09Now we'll get kicked off with Peter Lehman. Peter, welcome to the show. I'm excited that you're joining us today and you've got so many interesting areas that I'm looking forward to talking about. Unlike some of my podcasts where I start with, tell me about your firm and let's dive in there. I really would like to start with your journey and let's go back to some of your early days. You had a family business you grew up in. And I think part of that sets the foundational stage for what you ended up doing for the rest of your career. So if you would get us kicked off there, that'd be amazing. Yeah, that's great, Jeff.

3:41Thanks so much for including me on your podcast. I'm excited to be here. As you mentioned, I did grow up around a family business. We manufactured auto parts as a family for 80 years. I'll give you the highly condensed story of a business. My great-great grandfather was a salesman focused on selling horse blankets and other products of that nature. The Ford Motor Company came to that business and said, hey, we'd like you guys to use your material, which was at the time felt to manufacture engine gaskets for the Model T. And the company that my great-great-grandfather was working for, they said, we think this car thing is a bit of a novelty, maybe a fad.

4:30But if one of our employees wanted to start his own business, that we would support him as a supplier. So he recruited his son-in-law and they started stamping felt into engine gaskets and anything else that they could manufacture. They made things like lampshades for people who have vintage Scrabble boards. The felt on the Scrabble board may have been stamped circa 1920 something or 1930 something by this business. But over the course of time, The company really focused on supplying aftermarket auto parts, which included passenger car parts, diesel engine parts, some chemical products, some high performance parts, which ended up being something that I had a particular interest in.

5:21And I learned a lot at the dinner table. I learned a lot walking around the factory about manufacturing, running a business, taking care of people. The business at the time that it was sold in the late 90s was recognized by Fortune magazine as the fourth best place in America to work. The company and the leadership, my father and his generational peers who were working in the business at the time, took tremendous pride in the company's reputation as more than just an outstanding supplier to their customers, but also an amazing place to work in a family business in every respect. That foundation and that mindset has been a very important part of how I've pursued my career as an investor in other people's businesses.

6:16And when we're coming into family businesses, there are dynamics that I have experience with. Even the businesses that we're investing in that are founder and owner operated from the time of their inception, my ability to have had some of the experiences that I've had certainly puts me higher on the empathy curve, I'd say, than the typical individual who came up exclusively through some of the more conventional channels into the private equity, private market investing sector. What a great way to grow up and so many life lessons, I'm sure. And as you're migrating through that and looking at your college and education and then what you're going to do after, how did that impact that path and where did you go to college?

7:06I went to Northwestern University. I grew up in the Chicago area. I went to boarding school in Connecticut and then decided to come back to the Midwest for college. I absolutely loved being at Northwestern. Northwestern went to the Rose Bowl. my sophomore year for the first time since the 1940s. It was an amazing run to be a university student. When I was in college, as I'm guessing you may have had a similar experience, Jeff, it was not as vocational as a university experience is today. When I entered college, I assumed that one day I would be making auto parts like my father and my grandfather and my great-grandfather and my great-great-grandfather.

7:53And that changed when the business was sold in 1998. But what I loved about being at Northwestern is that I had the opportunity to really explore so many different subjects, courses. Northwestern was a magical place to see speakers. Herb Kelleher, the founder of Southwest Airlines, came to speak, was absolutely phenomenal. Ross Perot came to speak a couple of times on campus and the opportunity to listen to these transformational entrepreneurs and learn from them was really a great way for me to spend my college years. When it came time for my graduation, I was introduced to some gentlemen who had a fundless sponsor called Dakota Capital Partners.

8:44You know, as that has evolved to independent sponsor, they hired me. And what was really interesting about Dakota Capital Partners was that it was housed inside of Sam Zell's family office, Equity Group Investments. And for your listeners who are not familiar with Sam, he is one of the all-time great investors, basically invented the REIT. And as he would say, and as part of our mantra at Granite Creek, the firm that I founded with my partners over 20 years ago, that we were intending to be professional opportunists. And so while I was very much the junior man in the organization at Dakota, I did have the opportunity to absorb a lot from some incredibly smart and experienced people around me at Dakota and within the family office where our office was housed.

9:43So in 2005, you start Granite Creek and you start with some folks that you were working with at Dakota. And one of the things that I noticed as I was doing some research is just how much long term relationships you have with the partners that you have built this firm with and other people that you attracted very early. but can you talk about what was the strategy? What was it like starting your firm in 2005? In many ways, it was serendipitous. I had left Dakota Capital around 2001, 2002, but had stayed close to my colleagues there. And I went to do something that was pretty unusual. And that was, I had started a professional car racing team.

10:30And I had had some success with the team. I was not the driver. I was focused on the business and the sponsorships. And I had a really good six-year run owning the team in the league that we raced in. We became the most winning team in the league history, set a lot of other records, had a lot of fun. For me, that gave me the opportunity to be an employer. We had about 20 people on the team. I had to generate revenue. I had to make payroll. I had to handle the logistics of an organization that was traveling all over the country into Canada. And it was fun. But there came a time when I needed to get back to the world that I believed that I should have been in and really wanted to be in, even though I'd had this amazing experience in professional car racing.

11:27And I had reached out to one of my first bosses who became one of my founding partners at Granite Creek, a gentleman named Brian Borstein. And I said, Brian, I am in the process of selling the car racing team. Will you give me some advice? And that led to, hey, what are you doing next, Peter? and Brian had been talking to our other founding partner, Mark Radzik, about a new organization. And they said, hey, why don't you jump in on this and we'd like to form our own firm and we think you'd be a great addition. The first person who we hired was my college fraternity pledge son, like a fraternity little brother, an individual named Jim Clark.

12:17And we hired Jim about a year into Granite Creek existence. And the four of us are now the partners of Granite Creek. And the longevity that we've had together has really been fantastic. We all have different strengths. We work together in a very complementary way. And I've been really fortunate to have such stability in my professional life and such trust in my partners that allows us to be entrepreneurial. It allows us to take risks. It allows us to be very honest with each other. And as I look deeper into our organization, we have a number of our people who have been here for many years and we hope will spend their careers with us.

13:07And so when you were starting the firm, what was the thesis on where you're going to focus and how much has changed since that point? The thesis that we started with is substantially similar to the thesis that we have today. And that's that small businesses can grow at a much faster pace than large businesses. And if we were able to bring our resources, our support to the leaders of these small businesses, we could generate some pretty fantastic outcomes. And largely that's been the case. It's not to say that small businesses aren't fragile, that we don't need to be more interventional at times when things aren't going the way that we had hoped.

13:56And so those are some of the experiences that I'm actually most proud of as when a situation is tough and we're there to support and we figure it out and it works out for everybody. That feels as good as the rocket ship that just goes straight up into the right. So, you know, the thesis of the business is to find dynamic business leaders, dynamic entrepreneurs with whom we can partner to support their next chapters of growth and to bring our resources in the background to help that individual, to help his or her team grow as much as possible. And those are really fun rides to be on. Why don't you take us through and frame out where you're focused from an industry's perspective, a size perspective, and then dovetailing into you have very flexible capital strategies as opposed to some firms that are only private equity or only credit or only mezzanine.

14:56You have the ability to play in all those buckets in the capital stack. So I think if you walk us through those areas, we'll give our audience a real clean view of where you guys are focused. We have several different strategies that we focus on at Granite Creek. One is a generalist strategy where we're providing equity and mezzanine or some other form of structured credit to entrepreneurs and other small businesses to support growth, to support some sort of liquidity event for a family member or an owner. At times, we are partnering with other firms, independent sponsors, and we would generally cover the gamut on industries that we cover.

15:42There are a handful of things that we don't do, but the core strategy that we've been executing for now 21 years is a generalist equity and private credit strategy. We also have developed some particular interest and expertise around agriculture and agribusiness. We have a couple of strategies that are specifically focused on those sectors. One is a land strategy where we own and operate farmland. We take the risk on the crop. We have a unique asset light operating model that puts us very much at the ground level of what's going on in mostly Midwestern row crop farming. So think corn, soybeans, wheat to a lesser extent.

16:31The other side of our agro-cultural focus is a strategy that is built around the suppliers to the farm economy. And so examples of those types of businesses could be animal health and wellness products. It could be capital equipment that you may find on a farm. We have an investment in a business that is a supplier to other major suppliers to the farm economy. We have built a team of operating executives that can truly provide expertise and support in livestock sectors across multiple species, across row crop farming, and the various inputs and elements of those businesses that drive outcomes.

17:23So we invest in businesses that are typically between$5 and$15 million of EBITDA. Sometimes we are the sole capital provider. Other times we're partnering with similar firms. We'll ask some of our limited partners to co-invest with us. And so more broadly, we are serving the lower middle market as investors define it. And Peter, you talked about this earlier, being founder friendly as a potential owner of a business that might be considering partnering with you. That could mean a lot of things. What's that look like in practice once I become a partner with your firm? Yeah, that's a great question, Jeff.

18:03It's something that we really pride ourselves on. We want to be a CEO or a leadership team's greatest wingman, wing person. And we want to help them in the background with the things that they may not have had in their businesses prior to our involvement. And at the same time, we are deeply respectful that they are the experts in their businesses. They are the experts in their industries. And we are there to sit in the background to advise, support strategy, support information transparency, financial transparency. Sometimes there are things like systems implementation or even insurance issues or other risk management issues that we have lots of experience in that the leaders of the smaller businesses that we're investing in may only see a couple times in their career.

19:02One of the ways that we can really support a business is through their acquisition of another company. And again, this is something that we do all the time. And the typical small business leader may do once, never, three, four, five times. and we're really able to jump in and be that support person team that allows a business to complete a transaction that may be outside of their initial comfort zone in terms of the actual execution of the deal. Peter, when you're talking to a potential firm that you're going to invest in and you have all these different financial tools available to you, which a lot of firms don't, how do you decide how you're going to support that firm, whether it's equity mezzanine or other structures?

19:52How does that process work and how do you think about that? It's often led by the company that we're hoping to invest in and responding to their capital needs as opposed to what we think our requirements are. Often companies will have an idea of the amount of capital that they seek, they may not have always thought about the structure and the ways that an investor can come in. And what we're able to present to a business owner is something that allows us to invest in the equity in the business and really be aligned in terms of the outcomes of the business that drive value, while also being able to invest in something that looks like a mezzanine or some other credit security that reduces dilution for the owners of the business, that creates more capital flexibility over the long run.

20:58And so we really look at how our hybrid solution can meet the needs of the business, as opposed to how we can meet our needs and force that upon a company. And so far that has worked well with the entrepreneurs and the executives that we've partnered with. My standard line when I'm talking to a business owner is you can take my word for it, or I can give you these 10 references of people who've been in your exact situation and call them and ask them about me, ask them about our team at Granite Creek and how we work together and how we do our best to be empathetic to the executives, in companies' needs, which is really ultimately what allows a company to succeed and thrive that level of teamwork and collaboration.

21:46And I know there's another component of your strategy that I think is a little bit unique is you don't have a defined hold period. In fact, you shared that you're oftentimes thinking about a much longer hold period with your portfolio. Our goal is to get out when our partners are exiting. And sometimes that's pretty quick. sometimes that can take a while. We were in a business early on in Granite Creek's existence that we invested in for over 10 years. And it was an amazing experience. We had this wonderful relationship with the entrepreneur and his team, and they just kept growing. And eventually, it was time for them to seek liquidity.

22:29And we participated in that process, and we were very happy with that outcome. We actually had given the entrepreneur the idea of who we thought was the natural partner for an eventual sale. And lo and behold, that's what happened. But our goal is to hold hands with the other owners of the business. Typically, those are the members of the executive team, principally the CEO, and to plan our exit around that individual's exit. A worry that is always on the minds of an entrepreneur or an owner of a business is I partner with this PE firm and all things are great until they're not. And then when they go bad, the real PE firm shows up.

23:11Walk me through a scenario that you've had where things went bad and how did you deal with that? Yeah. Every investor in small businesses understands that these are often fragile organizations with thin management teams. And that's not always the case, but it is not an uncommon situation where you have a really great business that is built around one or three people. And part of our goal is to really shore up those organizations to make them more resilient through whatever shock may eventually come to that business. And we've seen shocks of various natures. So we started our business in 2005. As those of us who have gray hair, no hair in my case, will remember that was just before a pretty difficult economic time.

24:08We had some businesses in 2008 that were really struggling. And I think those are the moments that are most instructional around how to build resiliency into a smaller business. We had a business that we were a partner in that was a family business manufacturing electric forklifts. And the company had been around at the time we invested 50, 60 years and had a nice run. But the family had mostly taken themselves out of the day-to-day leadership and they were looking for a partner. When the great financial crisis hit, the demand for capital equipment really dried up. This business's revenue was down by 75%.

25:0175%. We're sitting around the table asking ourselves, who cares if this company survives and how do we keep the lights on for our investors, for the employees of the business? And we eventually stumbled upon one of their suppliers. And it was a Chinese company based in Hangzhou, which is a massively large city by our standards in the US, but a mid-sized city of seven, eight million people in China. We invited this supplier to partner with us on re-imagining this electric forklift business. And what resulted from that was so many life lessons for me as an investor, just an eye-opening experience, spending a lot of time in China, working with the supply chain, working with our partners.

25:58I made great friendships out of our Chinese partnership. We took this business off of life support and made it a real industry leader. Our Chinese partner that ultimately bought us out of our interest in this business went public a couple of years ago and has been enormously successful. The executive who we brought in to lead this business is one of the most dynamic leaders that we've ever worked with and is still a part of this business. A running joke that I've had is imagine if we hadn't given this individual's name is Dan. Imagine if we hadn't given Dan such a terrible business, what he could have done was something that was actually in pretty good shape.

26:46But ultimately, the times that we have run into stress, failure, those are the moments when we learn the most important lessons on how we want to conduct ourselves, how we want to support the businesses that we invest in today, and some of the ways that we can guide executives and entrepreneurs with the experience that we've had across multiple industries and multiple experiences, good and bad. What a great story. And you mentioned earlier the word serendipity, or I think you said it was a serendipitous thing that happened. It's kind of interesting because I use that word so often. And oftentimes you got to put yourself in a position for serendipity to come your way.

27:33And I'm sure like myself, you're getting a bunch of young people saying, hey, what would you do if you were in my shoes going into the work world? I want to get into private equity investment banking. What are the things that you're telling young folks today? Yeah, that's a great question, Jeff. It's a hard time to be a recent college graduate or a prospective college graduate looking to go into a professional services career. Many of these businesses and industries are difficult to break into, irrespective of the macro economic backdrop. But the role of artificial intelligence, the way that firms are repositioning how people conduct work will transform what that journey looks like for a recent college graduate.

28:25And what I believe will come back into my world, which has been mostly built on people who are amazingly competent at Excel spreadsheets, doing unique research, supporting the investment theses that we form here, some of that work is going to be automated. We are already automating a lot of it. And so the skills that are coming back, which at one point were far more valued in our economy, are really around critical thinking, communication. Are you a capable writer? It's not to say that this business will migrate away from financial literacy. That is a requirement that's table stakes for working in a business like ours.

29:22But the other softer skills that were not as emphasized in financial services businesses like the one that I work in, I believe will be far more important in the future. And so with that lead in, what advice would you give me if I'm a college student to develop the skills that I need to succeed in the next generation of work? Be curious. Take different classes. Think back to how a university experience might have been in a prior generation when it was not so prescriptive and vocational. and that level of curiosity and exposure will pay off for one's entire career. When I was in college, I didn't know exactly what I wanted to do.

30:15I took classes in material science. I took classes in sociology. I took economics. I took accounting and I was curious and the The curiosity that I had then, I think, has paid off in my ability to be more multidimensional than a lot of the young people who I've seen come up in this business, where all of what they did in their college experience was focused on getting themselves into investment banking. How many accounting classes could they take doing big projects for the investment banking club and assuming leadership roles in the investment banking club. Those are all great, like developing that financial literacy.

31:00That's table stakes, like I said, but those are not the ways to become more well-rounded, more curious, exercising critical thinking, analytical skills, which become far more important in an era when some of those financial activities can be automated with such ease. So I'm going to go back to your Dakota Capital days, and I want to ask you, do you have any favorite quotes or mottos that you share with your family or your team? But I know Sam Zell was a very gregarious guy who had all kinds of sayings. So I want you to share anything you remember from that and also what you're saying today. My partner, Mark Radzik, who worked very closely with Sam for a number of years, has always said that Sam instilled upon the team that they were professional opportunists.

31:55And we've taken that to heart. We like being opportunistic. Sometimes the outside world views that as almost a bad word, but it's worked for us. It obviously worked incredibly well for Sam Zell. So that is one of the things that I think about. The other saying that I use frequently is the second best answer is a quick no. And spending time on projects, deals, whatever it may be that aren't going anywhere is a waste of everyone's time. Let's just get to that no as quickly as possible. And it's okay to say no. No is a really powerful word. And so getting to that answer is important, in my opinion.

32:40I love that one so much because I think people appreciate not having their time wasted. And they might not like the no, but it definitely creates some grounding and some efficiency in your life as opposed to these long maybes that three months later turn into a no. It makes us a trusted counterparty. It adds trust to the relationships that we have with different counterparties. And the longer that you're in business, the more that you see other counterparties on the same transactions, whether those are investment banking, intermediaries, accounting firms, attorneys, being able to be trusted and be transparent with those counterparties is how you build relationships and trust that you need in the marketplace so that people know that you're going to do what you say you're going to do.

33:34This has been a really awesome podcast. I very much enjoyed listening to your story and where you guys focus. And I want to ask my question that I always close my podcast with, which is if I'm an owner of a business or a business needing capital and a partner like you, private equity space is so crowded with so many competitors. I've whittled it down to a couple tonight. What are the things you want me to remember about your firm that would tip me your way tonight as I'm making that final decision. Making a decision on a capital partner really starts with what your end objective is. If you want to sell your business and retire, get the highest price.

34:14Go for it and make sure that the partner that you choose for that transaction is going to do what they say. Check references. It's really such an important part of anything in life. For us, Our solution is different. And if you are an entrepreneur, business owner looking for a capital partner, valuation, it's always a consideration. But what is the valuation today versus the valuation in five years? And who's going to support you? And in some cases, allow you based on how things are set up in a legal arrangement to execute that business plan that you as an entrepreneur have envisioned. And that's really where being selective and thoughtful around alignment of interests and outcomes is critical.

35:10And again, back to reference checking, I always encourage our counterparties to ask the other people that we've done business with the hard questions about who we are as a partner and the roles that we've been able to play in their businesses and have we created value? Ultimately, that is the, I think, the most important decision for an entrepreneur who is selecting a partner because it is an intimate relationship. You have to really build trust in these partnerships over a number of years. And don't take my word for it. Call the dozens of people that we've worked with over the course of 21 years now.

35:52Peter, thank you so much for joining me on the podcast and wish you and Granite Creek and your entire team the best of luck in this next journey that we're going through with the AI world and all the things that come ahead. And I'm sure you guys will be very well prepared to go through that. Thank you, Jeff. It's been a pleasure.

36:12Peter Lehman: Thank you for joining us for Northstar's Private Equity Fast Pitch. For more information about Fast Pitch or our boutique private equity heavy hitter events, you can visit us at enorthstar.com