March 3, 2017
Interviewed by: Privcap
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At the Beginning with Bain Capital

Noted author Edward Conard gives highlights of his years as a founding employee at Bain Capital, which starts with him telling Mitt Romney, “I’ll work for free.” Soon enough some spectacular investments changed his compensation, and the firm’s size.

Noted author Edward Conard gives highlights of his years as a founding employee at Bain Capital, which starts with him telling Mitt Romney, “I’ll work for free.” Soon enough some spectacular investments changed his compensation, and the firm’s size.

The Birth of Bain Capital
Michael Ricciardi of Mercury Capital Advisors interviews Edward Conard, Author of The Upside of Inequality

Michael Ricciardi, Mercury Capital Advisors:
Hi, I’m here today with Ed Conard. Ed is the recent author of The Upside of Inequality, a New York Times bestseller, and former Bain partner as well. We’re here to talk to him about his experiences as a private equity capitalist. Welcome, Ed. You started at Bain Consulting and you moved from Bain Consulting to Bain Capital. Could you tell us about your earlier experiences at Bain?

Edward Conard, Author of The Upside of Inequality:
I’ll tell you my first experience at Bain: I went out to lunch with Mitt, who was trying to recruit me to go back to Bain Consulting because I was at Wasserstein Perella. I had left and I said, “I’ll admit, I’m not going to go back to Bain Consulting because I’ve been a partner in a consulting firm and an investment bank and I’ve got to do something different. I would become a partner at Bain Capital.” He said, “I can’t afford your Wall Street salary.” I said, “I’ll work for free. Then, you can just look back in time and figure out how much I was worth and pay me whatever you think I was worth.” The first year, I didn’t get a deal done, so he didn’t pay me a lot of money.

Ricciardi: Is that right?

Conard: Then, the second year came. What I thought was a company that had no business being for sale—it was called Waters. I still sit on the board. It makes instruments used by pharmaceutical researchers. It had 50% market share. It’s a phenomenal business. We debated whether to pay $365 million or $360 million for this business. Today, it’s worth $11 billion.

Ricciardi: Oh my goodness.

Conard: Then, I remember my last deal I did at Bain, like 15 years later. I said, “This is the best company I’ve seen since Waters.” It was a division of Texas Instruments. It had all the same characteristics—a dominant market leader. The managers at TI are just “take no prisoner” managers—it’s a really outstanding management team.

They said it wasn’t a good enough opportunity for TI. And you’re like, “Yes, but it’s still a great opportunity relative to the world.” So, they divested it, but again, we had a long debate over the price. We put in less than $1 billion and took out $4 billion of profit, of which 30% went to the partners of Bain Capital.

Ricciardi: Is that right?

Conard: Yes.

Ricciardi: Good for you guys.

Conard: Another thing I would say is we came from a consulting firm, so we had a very different view, more of a managerial view. Though I do think managers are more focused on day-to-day—how do you get the team to perform?—and less on the big strategy, which is done more in CEO offices or wherever. In consulting, you get a lot of reps, a lot of experience in the whole strategy, big picture, longer view than a line operating manager gets through most of his career until he gets to the very top in the organization.

So, I thought we brought those unique capabilities and we were always trying to expand our operating capabilities to be able to implement change. Bain has always regarded itself as being a more effective consulting firm at helping companies implement change. I was surprised at how fast the industry hired that capability and developed that capability and how much of that capability they have. You look at the personnel in these firms now—they have enormous portfolio-management groups and you’re almost bringing a whole management and Fortune 500 management capability team with you as you go from investment to investment.

If you don’t have unique insights and you can’t make unique improvements, the prices are so high today that I think it’s hard to make a good return. You can pick assets in a hedge fund a lot cheaper than you can in an LBO fund where you have to spend millions of dollars to get price discovery. Then, more often than not, you should say, “No, that’s about the price I should be paying.” It doesn’t look so great, right? So, unless you have unique capability, it’s hard to be successful. You’ve seen these firms adopt or hire a lot of it.

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