Bain Capital Pursues Life Sciences, Leverages Private Capital Pedigree

Bain Capital has been a Wall Street fixture since the early days of the 1980s. The investment firm has flourished since their founding and now operates several specialized business units. Founded in 2016, their life sciences fund focuses on companies that are innovative leaders in the healthcare field.

Bain Capital-backed Waystar was created out of the 2017 merging of Navicure Inc. and Zirmed companies and early discussions about a potential sale could have the business valued at $3 billion, said people familiar with the matter. The healthcare tech company offers a revenue cycle management suite for streamlining these processes for their clients. Possible suitors for Waystar’s hand have been rumored to include Oracle and Visa but no details have emerged regarding the potential deal.

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Bain Life Sciences stops for no potential exit plans, however, and recently made a SEC filing indicating their intention to raise a second life sciences fund. Their first fund of its kind successfully raised $720 million in 2017. While the filing did not reveal how much the Boston-based firm hoped to raise, investments made with their first fund reflect a wide-range of sector interests, from biopharmaceuticals to medical devices and diagnostics. They seek out investment opportunities ranging between $30 to $70 million in exchange for majority interest and board representation of their portfolio companies. According to their website, they currently hold 14 companies under management.

But Bain Capital’s track record for holding controlling interests has not always served companies well. Mitt Romney became a big player on America’s political stage when he ran against Barack Obama in the 2012 presidential election. Much has been said about his political career but long before his call to public service, the investment-tycoon-turned-senator joined forces with a man named Bill Bain at his fledgling firm Bain & Company – a management consulting firm – in 1977.

The parent company created Bain Capital in 1984 and with Romney at the helm, became known as a firm that would ‘turnaround’ floundering companies using a high leverage buyout model. In practice, the firm may decide to purchase a company worth $500 million dollars – they would likely contribute $20 million of their own capital and secure an additional $350 million from an investment bank to buy a majority stake.

The loan would then be passed onto the newly-acquired company, along with the often-exorbitant interest payments and management consulting fees from Bain & Company once the company realized they were in financial dire straits and required advice on how to cut costs. Unfortunately, the easiest targets for becoming more cost-efficient ends as a tragic tale of outsourcing and layoffs. Under Romney’s leadership, Bain Capital financially engineered a system where Newton’s third law applied to everyone but those who put the action into motion.

According to two Wall Street Journal reporters Mark Maremont and Brett Arends, 77 investments were made over the course of Romney’s fifteen-year reign at Bain. Between 1984 and 1999, the firm made $2.4 billion in gains on $1.2 billion worth of investment. Of those companies, 22 percent applied for bankruptcy or shuttered the business. Another 8 percent faced so many difficulties that Bain lost 100 percent of their client invested money in each deal. Only ten of the deals made during that time accounted for 70 percent of the company’s total dollar gain at that time. Of those ten, a further four were forced to file with bankruptcy court in the following years.

The rub in Bain’s take-no-prisoners, aggressive investment strategy is that it may not have yielded the staggering returns often cited by victorious investment managers from that time. According to Arends: “Bain Capital, as we’ve seen, produced real dollar-on-dollar investment returns that were, at best guess, somewhere between 20 percent and 40 percent a year.”

Arends went on to calculate potential gains made in the stock market during the same years, combined with debt borrowed at corporate interest rates and concluded that 30 to 35 percent in annual gains could reasonably be expected. “That’s how much money could have made by issuing company bonds and then spending the money picking stocks out of the paper at random,” he said. Given the high cost of jobs cut, businesses bankrupted, and pensions pillaged, one might describe the gains made as more than a little underwhelming.

Despite their eyebrow-raising early days, Bain has diversified their practices and is more successful than ever. They hold $105 billion in assets under management and employ over 1,000 staff members across 19 offices worldwide. While they still buy companies that are identified as “at the crossroads of creating value”, it remains to be seen whether their mergers and acquisitions are a kinder version of their earlier efforts or are a result of more sophisticated marketing strategies.