Bain Capital
Bain Capital, LP is an American private investment firm based in Boston, Massachusetts, with around $185 billion of assets under management. It specializes in private equity, venture capital, credit, public equity, impact investing, life sciences, crypto, tech opportunities, partnership opportunities, special situations, and real estate. Bain Capital invests across a range of industry sectors and geographic regions. The firm was founded in 1984 by partners from the consulting firm Bain & Company. The company is headquartered at 200 Clarendon Street in Boston with 24 offices in North America, Europe, Asia, and Australia.
Since its establishment, Bain Capital has invested in or acquired hundreds of companies, including AMC Theatres, Artisan Entertainment, Aspen Education Group, Apex Tool Group, Brookstone, Burger King, Burlington Coat Factory, Canada Goose, DIC Entertainment, Domino's Pizza, DoubleClick, Dunkin' Donuts, D&M Holdings, Guitar Center, Hospital Corporation of America, iHeartMedia, ITP Aero, KB Toys, Sealy, Sports Authority, Staples, Toys "R" Us, Virgin Australia, Virgin Voyages, Warner Music Group, Fingerhut, Athenahealth, The Weather Channel, Varsity Brands and Apple Leisure Group, which includes AMResorts and Apple Vacations. The company and its actions during its first 15 years became the subject of political and media scrutiny as a result of co-founder Mitt Romney's later political career, especially his 2012 presidential campaign.
In June 2023, Bain Capital was ranked 13th in Private Equity International's PEI 300 ranking of the largest private equity firms in the world.
History
1984 founding and early history
Bain Capital was founded in 1984 by Bain & Company partners Mitt Romney, T. Coleman Andrews III, and Eric Kriss, after Bill Bain had offered Romney the chance to head a new venture that would invest in companies and apply Bain's consulting techniques to improve operations. In addition to the three founding partners, the early team included Fraser Bullock, Robert F. White, Joshua Bekenstein, Adam Kirsch, and Geoffrey S. Rehnert.Romney initially held the titles of president and managing general partner or managing partner. He later became referred to as managing director or CEO as well. He was also the sole shareholder of the firm. At the time, the firm had fewer than ten employees.
In the face of skepticism from potential investors, Romney and his partners spent a year raising the $37 million in funds needed to start the new operation. Bain partners put in $12 million of their own money and sourced the rest from wealthy individuals. Early investors included Boston real estate mogul Mortimer Zuckerman and Robert Kraft, the owner of the New England Patriots football team. They also included members of elite Salvadoran families such as Ricardo Poma whose capital fled the country's civil war. They and other wealthy Latin Americans invested $9 million primarily through offshore companies registered in Panama.
While Bain Capital was founded by Bain executives, the firm was not an affiliate or a division of Bain & Company but rather a completely separate company. Initially, the two firms shared the same offices—in an office tower at Copley Place in Boston—and a similar approach to improving business operations. However, the two firms had put in place certain protections to avoid sharing information between the two companies and the Bain & Company executives had the ability to veto investments that posed potential conflicts of interest. Bain Capital also provided an investment opportunity for partners of Bain & Company. The firm initially gave a cut of its profits to Bain & Company, but Romney later persuaded Bill Bain to give that up.
The Bain Capital team was initially reluctant to invest its capital. By 1985, things were going poorly enough that Romney considered closing the operation, returning investors' money to them, and having the partners go back to their old positions. The partners saw weak spots in so many potential deals that by 1986, very few had been done.
At first, Bain Capital focused on venture capital opportunities. One of Bain's earliest and most notable venture investments was in Staples, Inc., the office supply retailer. In 1986, Bain provided $4.5 million to two supermarket executives, Leo Kahn and Thomas G. Stemberg, to open an office supply supermarket in Brighton, Massachusetts. The fast-growing retail chain went public in 1989; by 1996, the company had grown to over 1,100 stores, and as of fiscal year-end January 2012, Staples reached over $20 billion in sales, nearly $1.0B in net income, 87,000 employees, and 2,295 stores. Bain Capital eventually reaped a nearly sevenfold return on its investment, and Romney sat on the Staples board of directors for over a decade. Another very successful investment occurred in 1986 when $1 million was invested in medical equipment maker Calumet Coach, which eventually returned $34 million. A few years later, Bain Capital made an investment in the technology research outfit the Gartner Group, which ended up returning a 16-fold gain.
Bain invested the $37 million of capital in its first fund in twenty companies and by 1989 was generating an annualized return in excess of 50 percent. By the end of the decade, Bain's second fund, raised in 1987 had deployed $106 million into 13 investments. As the firm began organizing around funds, each such fund was run by a specific general partnership—that included all Bain Capital executives as well as others—which in turn was controlled by Bain Capital Inc., the management company that Romney had full ownership control of. As CEO, Romney had a final say in every deal made.
1990s
In the 1990s, Bain Capital started several affiliates that supported its private equity and other assets classes. The long-short equity hedge fund, Brookside Capital, was founded in 1996 and, Sankaty Advisors, the company's fixed income affiliate, was started two years later. Building affiliates for the firm was directed by three conditions: that it leveraged its core skills; one of its Managing Directors has a leadership role; and, the new business invests in attractive asset class.Beginning in 1989, the firm, which began as a venture capital source investing in start-up companies, adjusted its strategy to focus on leveraged buyouts and growth capital investments in more mature companies. Their model was to buy existing firms with money mostly borrowed against their assets, partner with existing management to apply Bain methodology to their operations, and sell them off in a few years. Existing CEOs were offered large equity stakes in the process, owing to Bain Capital's belief in the emerging agency theory that CEOs should be bound to maximizing shareholder value rather than other goals. By the end of 1990, Bain had raised $175 million of capital and financed 35 companies with combined revenues of $3.5 billion.
In July 1992, Bain acquired Ampad from Mead Corporation, which had acquired the company in 1986. Mead, which had been experiencing difficulties integrating Ampad's products into its existing product lines, generated a cash gain of $56 million on the sale. Under Bain's ownership, the company enjoyed a significant growth in sales from $106.7 million in 1992 to $583.9 million in 1996, when the company was listed on the New York Stock Exchange. Under Bain's ownership, the company also made a number of acquisitions, including writing products company SCM in July 1994, brand names from the American Trading and Production Corporation in August 1995, WR Acquisition and the Williamhouse-Regency Division of Delaware, Inc. in October 1995, Niagara Envelope Company, Inc. in 1996, and Shade/Allied, Inc. in February 1997. Ampad's revenue began to decline in 1997, and the company laid off employees and closed production facilities to maintain profitability. Employment declined from 4,105 in 1996 to 3,800 in 2000. The company ceased trading on the New York stock exchange on December 22, 2000, and filed for bankruptcy in 2001. At the time of the bankruptcy, Bain Capital held a 34.9% equity ownership interest in the company. The assets were acquired in 2003 by Crescent Investments. Bain's eight years' of involvement in Ampad is estimated to have generated over $100 million in profits.
In 1994, Bain acquired Totes, a producer of umbrellas and overshoes. Three years later, Totes, under Bain's ownership, acquired Isotoner, a producer of leather gloves.
Bain, together with Thomas H. Lee Partners, acquired Experian, the consumer credit reporting business of TRW Inc., in 1996 for more than $1 billion. Formerly known as TRW's Information Systems and Services unit, Experian is one of the leading providers of credit reports on consumers and businesses in the US. The company was sold to Great Universal Stores for $1.7 billion just months after being acquired.
Other notable Bain investments of the late 1990s, included Sealy Corporation, the manufacturer of mattresses; Alliance Laundry Systems; Domino's Pizza and Artisan Entertainment.
Much of the firm's profits was earned from a relatively small number of deals, with Bain Capital's overall success and failure rate being about even. One study of 68 deals that Bain Capital made up through the 1990s found that the firm lost money or broke even on 33 of them. Another study that looked at the eight-year period following 77 deals during the same time found that in 17 cases the company went bankrupt or out of business, and in 6 cases Bain Capital lost all its investment. But 10 deals were very successful and represented 70 percent of the total profits.
Romney had two diversions from Bain Capital during the first half of the decade. From January 1991 to December 1992, Romney was the CEO of Bain & Company where he led the successful turnaround of the consulting firm. In November 1993, he took a leave of absence for his unsuccessful 1994 run for the U.S. Senate seat from Massachusetts; he returned the day after the election in November 1994. During that time, Ampad workers went on strike, and asked Romney to intervene; Bain Capital lawyers asked him not to get involved, although he did meet with the workers to tell them he had no position of active authority in the matter.
In 1994, Bain invested in Steel Dynamics, based in Fort Wayne, Indiana, a prosperous steel company that has grown to the fifth largest in the US, employs about 6,100 people, and produces carbon steel products with 2010 revenues of $6.3 billion on steel shipments of 5.3 million tons. In 1993, Bain acquired the Armco Worldwide Grinding System steel plant in Kansas City, Missouri and merged it with its steel plant in Georgetown, South Carolina to form GST Steel. The Kansas City plant had a strike in 1997 and Bain closed the plant in 2001, laying off 750 workers when it went into bankruptcy. The South Carolina plant closed in 2003 but subsequently reopened under a different owner. At the time of its bankruptcy it reported $553.9 million in debts against $395.2 in assets. Bain reported $58.4 million in profits, the employee pension fund had a liability of $44 million.
Bain's investment in Dade Behring represented a significant investment in the medical diagnostics industry. In 1994, Bain, together with Goldman Sachs Alternatives completed a carveout acquisition of Dade International, the medical diagnostics division of Baxter International in a $440 million acquisition. Dade's private equity owners merged the company with DuPont's in vitro diagnostics business in May 1996 and subsequently with the Behring Diagnostics division of Hoechst AG in 1997. Aventis, the successor of Hoechst, acquired 52% of the combined company. In 1999, the company reported $1.3 billion of revenue and completed a $1.25 billion leveraged recapitalization that resulted in a payout to shareholders. The dividend, taken together with other previous shareholder dividends resulted in an eightfold return on investment to Bain Capital and Goldman Sachs. Revenues declined from 1999 through 2002 and despite attempts to cut costs through layoffs the company entered into bankruptcy in 2002. Following its restructuring, Dade Behring emerged from Bankruptcy in 2003 and continued to operate independently until 2007 when the business was acquired by Siemens Medical Solutions. Bain and Goldman Sachs lost their remaining stock in the company as part of the bankruptcy.
By the end of the decade, Bain Capital was on its way to being one of the top private equity firms in the nation, having increased its number of partners from 5 to 18, having 115 employees overall, and having $4 billion under its management. The firm's average annual return on investments was 113 percent. It had made between 100 and 150 deals where it acquired and then sold a company.