YouSaid · the spoken record

Chris Gordon

lines on the record: 56
first: 2023-08-28
most recent: 2023-08-28
sittings or episodes: 1
sources: podcast

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“It was a lot of fun to do a little walk back through time. I'm always happy to talk about this one. So appreciate you. You have me on here, Ted. This was really enjoyable.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would say by far is the fact that it's an investing business where you get to spend a lot of time dealing with real people around different business dynamics. There's lots of different ways you can invest. But a number of them involve a lot of analytics and computer screens and trading. And there's nothing negative about all of that. Those are all perfectly good activities. Just for me personally, I find it much more interesting to be in the boardroom, be with the management team, actually work through those dynamics and problems and challenges and opportunities in a very human way. I've become really good friends over the years with many of the CEOs from companies that we've long exited. I mean, if they're not just business relationships, they've become real personal relationships.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“When no one believed interest rates could ever go up, we actually put in place swaps and hedges to swap out over 95% of our variable rate interest exposure across our entire portfolio, not because we knew that interest rates were going to go up. We certainly thought they might as we looked at inflation, but because buying that insurance policy was incredibly cheap at the time because the market was basically pricing interest rates as if they would never rise. And so for very little financial commitment, you could basically cap and swap out all your exposure. So we did that. We've had, in a good way, really no impact across our portfolio from rising interest rates, which has helped our companies be in a good position to have better cash flow and try to grow into any dislocation that we see out there.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“They were very aggressive, and for the most part happened with very low interest rates. And certainly if you look at what would be financeable now on the same transaction on a new basis, it would be probably a lot less debt and it'd be way more expensive on the interest side of things. We're actively engaged in that same long-term planning around our debt capital structures now that we were back in 2008-9 with HCA. An example of that back in early 2010.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Call it 21 or early 22 time frame, but at the same time, a lot of investment professionals who'd had a lot of success over time investing behind some of that upward momentum was interesting tension. And then now we've obviously had dislocation in the debt markets and dislocation in the equity markets, although business performances actually for the most part still pretty good. And so one of the lessons of all these cycles and all these crises is that they're very hard to predict in the moment. And that's we're seeing just yet another version of that now. Specifically, the lessons from this one to now are mainly around how we think about the debt side of the capital structure of our companies. Because you asked earlier about how did you think about post-GFC, that big wall of debt you had maturing out in probably 2012 and 2013. And we thought a lot about it early on. That was a really important lesson for what we look at now because if you look at the debt capital structures that were put in place in 2020 and”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“What are the benefits of having lived through multiple cycles? Did I start in this business in 97? So we saw the dot-com bubble and the burst there and then lived through the GFC. And then honestly, one of the more unusual, if you call it a cycle, was the fact that post-GFC we had 12 years of a lot of different tailwinds going up into the right, even to the point of heading into a pandemic, as we all experienced in early 2020 and assuming that was going to cause all kinds of dislocation and then sitting around a year and a half later being somewhat amazed that didn't happen. At some level, one of the concerns that people who have been around for a long time had then is there was already this building view that risk was probably being under discounted just because nothing bad had happened in a long, long time. And even when the bad thing happened, nothing bad happened. It was really uncomfortable looking at the risk return profile of some of the transactions that were happening in that 2000.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Important it is to us that we're trying to be supportive partners to the leaders and managers in our companies. We aren't trying to come in and take control or be incredibly hands-on. And this was just another really good case study of how this looks and how this can work. And then you asked for the industry also. It's a little harder to say, certainly at the time it had some real impacts because it demonstrated you could do a very large debt underwriting. It demonstrated that you could put together an equity consortium big enough to support a very large transaction like this those were some very short-term supports and the GFC happened a few years later and turned a lot of those things on their heads and so the industry is probably unlearned and relearned a whole bunch of those lessons over the years since then. How would you apply the experience of going through that to the current market environment? It's one of the things that we talk about with our investors or really anyone who asks is”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“I said, I was senior enough to appreciate it, but junior enough still to have tremendous benefit from all those learnings. How about for bank capital? It was a high-profile, successful transaction that I think was great in a lot of ways. It was successful investment outcome, but it's also just, it's a great company story. It's a company that has a long history of not just delivering good financial returns, but delivering great patient care and being a really important part of the healthcare delivery ecosystem in lots of different communities. It's always good to be associated and affiliated with dynamics like that. The relationship that we have with the Frist family and how important that was to all of this happening is always helpful as we talk to other founders out there in the world. Not every transaction we do involves a founder, but certainly a large number of them do. And it's great to have a case study like this to go talk about how this works and how it happened. And especially how”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“The impact of the seal on your career, on Bain, and on the industry? For me personally, it was really important. As I said, it kind of came at a time when I was far enough along in my career to probably know enough to learn some lessons from it and a great platform to build out some relationships. And then just being involved with such an important company sitting in hospitals at the center of the healthcare ecosystem is we as all of Bain Capital try to build out our knowledge base and presence in the healthcare space. This was just a really interesting seat to have given how much of healthcare flows through hospitals as it relates to just deepening our experience around the ecosystem. I think there's always some serendipity in any given career path or any given set of a series of investments one might make. For me personally, this just happened at a really good time to help me build out that experience base at a time in my career when like”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Like doing a lot of little things better over a long period of time as opposed to some grand transformation. And then the last thing I would mention is just watching and getting to know Tommy Frist and the other members of the leadership team at HCA was a tremendous lesson in the power of culture and how important it is to have a great culture that develops people, makes them want to stay for the long term, and somehow creates both a performance culture and a really supportive, almost family-like environment. Watching that happen in this company over multiple decades was incredibly powerful in just seeing how important that is and when you can create that, what a just virtuous cycle emerges from for business performance.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Can't predict all those things. What is it that I feel good about underwriting is standing behind? And in general, is this the right way to be delivering great patient outcomes in a way that is efficient and effective for the overall system? If that's true, then even if you can't quite predict where all the different regulatory dynamics are going to go or the way paradynamics are going to go, nothing can go wrong, but you feel like you're probably in a pretty good place in the system. If you find yourself looking at a business that is narrowly premised around some nuanced regulation and if that regulation changes, your business model is going to blow up. That's a much harder place to be, even if it's a perfectly good business. Another lesson was in this case in particular, but success in business is not always about some grand, transformative initiative. In some cases, it's just about doing a lot of little things better. And of course, it's critical to have a great management team to be able to do that. But for me, this one feels a lot more.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“All said and done, what did your returns look like on HCA? We ended up making about a five times multiple of money on that investment. And some of that was value that was created between when we bought the company and when it came public and some more of that came from the ongoing stock price increase as we exited over time. What were your biggest lessons learned from the deal? For me, especially I was 10 years into my career, but still call it midstage in career. And so there was definitely a lot to learn there. I'd say one is it was especially in healthcare, a really good reminder that the system can change over time. We owned this company through the Affordable Care Act. And that drove lots of different dynamics, some helpful, some challenging through the healthcare sector. And anytime you own a particularly healthcare services business, you can never really predict where the next election is going to go, where the next regulatory initiative is going to go. And so you have to step back and think about”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Being able to deliver a company, the public market that has a lot of room to keep growing and creating value over time because we're going to be selling shares for two, three, four, five years, sometimes even longer in some cases. And there is no greater fool out there. Public investors are smart. If you haven't built a platform that has long-term value creation potential, they're not going to give you a good price for your stock. There's definitely a win-win embedded. And when we've looked at the public equity performance of our bane capital IPOs relative to the overall market index, we outperform pretty dramatically. And that's not happening because we're somehow altruistic or we just want to deliver lots and lots of value to public equity markets. It's because that is the only way we can exit is by taking companies public that actually have a lot of really good value creation runway in them that public market investors can get excited about and therefore want to buy our stock.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“That was the storyline in the narrative on our IPO road show. And because we also had the results to back up that story, we were able to build a lot of conviction around the public equity buyer base to do very large IPOs, a $4.5 billion IPO. Those are pretty few and far between when you get to IPOs of that kind of scale. And the market believed in that story. And as I said, we went public at $30 a share, which felt like a good valuation to us. But look, I don't think the frists have sold many of their shares over the years. ended up, I think, selling our last shares around $75 a share or so, so we felt great about our investment. But the Fris family has, like I said, I don't think they've sold a whole lot of shares and they're setting up probably in that high 200s now. So it's been a really strong, robust performer over time, which is one of the interesting things about taking companies public is the only way that we as a private equity investor can get value from an exit perspective, from an IPO is by”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“As well, it used to be a public company, and at least at the moment we were able to take it private didn't trade that well in the public markets. And so what's going to be different next time? And so that was actually an important part of what we wanted to do during our pre-re-IPO ownership period was how do we build the narrative to help the market understand the strengths that we see in this business so that when we come back to market someday, we'll be aligned in what we're focusing on in terms of the growth opportunities and the strength of the platform. Part of that is just messaging, but part of that is also just driving the underlying results and being able to show that these investments we've made in our local market presence and the capital that we put in the ground to have the best equipment that it lets us then attract the best physicians, that makes us very high demand from a pair perspective, from an individual patient perspective. Those are the features that really can drive longer-term growth. And so when we did come public again in 2000,”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“And they were pretty nicely spread out at pretty attractive costs. And so we were helped a lot by the fact that the debt markets did in fact recover pretty strongly after that 2009-10 time frame. But I think the thing that the company and the board did that was prudent was just start working on that early and often as opposed to waiting until we got closer to the maturity. How'd you think about your ultimate exit strategy? Well, just given the size of the platform The base case from the very beginning was this is very likely going to need to be an IPO again. And so now who knows? There's obviously other things that could happen. We didn't really see any strategic buyer who was going to want to enter the hospital space in this large a way and at least at the time there wasn't any set of private equity funds doing transactions as large as this was by the time we got around to exiting it, let alone when we started. And so it seemed like an IPO was the likely answer. But of course the question that arises then.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Opportunities to do so once the market's healed a little bit. You didn't do very much of it in 2008 or 9, but starting into 10 and 11 and thereafter, let's just start over a long period of time in a very prudent measured way, chipping away at that. And so we started issuing incremental debt offerings out into later maturities, out beyond that six and seven year mark and using that to refinance our year's six and seven type maturities. And so a pretty gradual way probably over the course of 2010 to 2014 or 2015, we really just smoothed off that whole maturity wall and we refanced a little bit of it with equity in the IPO, but not very much. The IPO is actually mainly secondary capital because we had done a good job of growing into our capital structure and already going down the path of spreading it over time. And so we got to the point where we had no one year was a big wall of mature.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Really good investment for anyone who bought at the IPO and held on to it. But because of Bank of America Merrill Lynch's balance sheet considerations, it may have been exactly the right decision for them. I don't know what they were dealing with on their balance sheet side, but it did result in them exiting and liquidating their HCA position a lot earlier than the rest of the equity consortium. As you worked your way through the financial crisis, how did you approach the recapitalization and then exit from the business into the public markets? On the recapitalization front, right from 2008 when we started talking about it in the boardroom, we knew that we just needed to have a long-term plan around how we just continue to spread our capital maturities over time. The next day after you do an LBO, you typically have a debt maturity stack that looks something like all of my debt comes due in years six and seven or something like that, give or take. They vary a little bit. We said, look, as soon as we have...”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“They were merged into B of A somewhere along the way. It was still the same actually day-to-day team members that we'd been interacting with all along, but now they were part of what became called BAML, so Bank of America Merrill Lynch. And so in one sense, nothing changed. But at the same time, the bank itself had some balance sheet considerations and really wanted to figure out where they could generate liquidity to help out with their balance sheet. And so unfortunately for them, they pushed to sell their HCA stake once we were a public company, certainly with the benefit of hindsight earlier than was optimal. And so we went public sometime in 2011, but they sold their whole stake shortly thereafter. And HCA went on a really nice stock price run basically ever since then. They went public at around $30 a share. And I think the stock is currently somewhere in the mid to high 200s. And so it's been a really...”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Looked at because obviously that's not how people decide to go get healthcare. But what it was is that that Noticing that the wait time ranges from five to 15 minutes, the next time they do need to go to emergency zoom are going to want to go to that emergency room. There was a long list of, I would think of it more as operating optimizations as opposed to any broad strategic transformation that occurred that really helped drive some incremental growth and some incremental margin expansion and efficiency in the system, which hospital companies are not high growth industries. But if you take a business that probably as an industry is growing low to mid single digit percentages and you can add a few percentage points of growth on top of that, you can really drive a lot of performance. And that was really the operating story of what happened with HCA in that era. So when Merrill Lynch had its troubles in the financial crisis, presumably it didn't continue to make these equity investments. Curious if anything happened with their ownership of HCA. You're right. They did stop making these kind of equity investments.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Developing sets of key performance indicators to really help all the different hospitals across the network understand where they might have an ability to drive more efficiency amongst their operations, what are the right service offerings within a hospital that attract the most physicians and make patients want to come there. One really interesting example actually was around emergency room optimization and they did a big project around how can we just be more efficient in our emergency room so that people wait 10 minutes instead of an hour and a half when they show up in the ER. I'm sure you've experienced both maybe the bad side and the good side of that. And so they got their emergency rooms working really well. And then the next step, which I thought was brilliant, they started advertising ER weight times on electronic billboards. And the idea wasn't that someone was going to say, oh, look, there's a 10-minute wait time at the HCA emergency room. Maybe I'll go over there now because I need something.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“And we were highly supportive, and we found some ways to help. But the initiative was really around how can we create more central value to this network of 160 hospitals that we have? Because the historical HCA philosophy had largely been around we really want to have great local market, local hospital CEOs and leadership, but that's really how you create value and drive good performance in hospitals. The center really doesn't need to be doing all that much. The mindset shift was that, well, of course, having strong local leadership in our hospitals is incredibly important, but the center can provide some tools to really help optimize that care delivery and those operations in the hospital systems. Not that all of a sudden HCA was going to become command and control and we're going to run all the hospitals from Nashville. But Nashville could provide a lot in terms of sharing best practices around the system.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“2011 or 12, which is really when our debt started to mature. What happened to, say, the left side of the balance sheet? Hospital businesses are not recession immune, but they are fairly recession insensitive because you're delivering healthcare and people, well, maybe some larger portion of the population might lose their insurance coverage during a recession. There is good safety nets in many cases for coverage. And so hospitals don't tend to face too much in the way of volume headwinds, but still there are some challenges. As we headed into the recession component, the part that would really affect the operating side of HCA, we certainly had some concerns. But one of the things that we had started working on, which ended up being pretty impactful, was a bit of a shift in operating mindset at HCA. And look, I'm always happy to claim credit when the private equity investors are the ones that drive something. Full disclosure, this was really driven by the management team and really Richard Brack.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was generally on plan, but at the same time, you're looking forward and you're thinking, okay, well, at some point, we'll need to either exit this business or go public, and we're going to need to refinance all this debt. And if the debt markets are in a really bad spot, that could be a challenge. Now, the good news is that was still years out before we really had to be worrying about those dynamics, but it certainly hit the boardroom conversation set, which is, okay, we're dealing with a very different world from a debt financing perspective now than we were back in late 2006 when we put this financing in place. So what are all the things that we need to be doing over the next several years to be prepared for what could be a much more challenging refinancing environment as this dead all matures? Now, a lot of different factors played out over time. We did go public, so that created a delevering event. The debt markets improve a lot between 2008 or 9, which is when we would have been having this conversation.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“When you hit the financial crisis for HCA? The good news is the bad debt risk that I referenced earlier related to patient bad debt, so uncompensated care. So that wasn't our balance sheet. But you raise a good question, which is we had a lot of debt on our balance sheet. Now, the good news is when you put these types of LBO transactions in place, you generally have reasonably long time frames on your debt and plenty of cushion if you've underwritten appropriately around your operating cash flows and what you're going to need to service that debt or maybe not plenty of cushion, but enough that for it to be appropriate within the context of the operations of that kind of a business. So we head into the financial crisis. Day one that didn't affect our balance sheets, our balance sheet was all underwritten and put in place and we'd swapped out our interest rates. And so we had what we had from a balance sheet perspective. The business had been performing well.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Gain. This actually wasn't a case where we had a lot of very transformative initiatives in mind. HCA was a well-run company. And so this was much more a story about just really focusing on a longer list of tactical optimizations with the idea that driving that kind of performance will help re-educate some future buyer universe, whether public or otherwise around the power of this kind of a platform relative to what had been some of the perceived headwinds around some of the short-term admissions or uncompensated care volatility. Two years into this transaction, you run into the financial crisis and you had mentioned two phrases that called to mind. I wonder what happened. One is bad debt risk and the other is Merrill Lynch. So I would love to hear what was that experience like?”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Find themselves having to manage around some of those shorter term dynamics when I think for the most part they would much rather be focused on what are the long-term investments I need to make and over time that will deliver good short-term results as well but most businesses aren't so linear that you don't have some amount of volatility around the mean even if it's just all heading in the right direction and so in a case like like HCA What it generally lets you do is it tends to let you take actions more quickly operationally, even if that might lead to some shorter term volatility in your results. If you decide on a course of action and it's going to lead to Come X, Y, or Z by year five in a public company setting, you might blend into that over time in a private company setting if it's the right thing to do, you'd do it all at once and accept the fact that that could create a little bit of disruption, but you're doing it for that long term.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is a general matter. Public company boards have the same objective as anybody, which is you want to create obviously good value for your customers, good value for your employees, and good value for your investors. But I do think that the nature of trying to deliver value to public company shareholders does get more complicated by the need to always drive your quarterly results on an ongoing basis. And look, there's plenty of public market investors who have long-term orientation, but there's also a subset of the public market that is a little more short-term oriented and tries to invest around some of those nearer term quarterly dynamics. And it is in some cases painful for public companies to have a lot of volatility around their stock price. It can be disconsidering to your employee base when you see your stock price moving around. And so even if with the best of intentions, I think a lot of public companies”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“In the long term, there's a lot of investment value that can be created by having healthy dynamics around the table. And so we certainly had a lot of conversations, but the nature of those conversations tended to be, okay, if there's a question or a difference of opinion over an issue, let's just figure out what more work we can do, what more facts we can bring to the table to try to get to a good place there. Once you bought the business, were there aspects of the operational game plan that the Frisk family thought they could implement? that they hadn't been doing as a public company.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Consortium of buyers. In a theoretical sense, anytime you have more parties around the table, it's always a little harder and a little more complicated. We've always found that to be a pretty good dynamic for us, and we found the KKR team and certainly the Fris family and the Merrill Lynch team to be really good partners in all of this because nobody was really showing up with a lot of ego or need to be the one who was right or need to be the one who was the loudest voice at the table, including, by the way, the Frist family. They're the ones who probably would have had the most right to do that. But they're just an incredibly smart but humble group of people who's always willing to listen to good ideas from others. And so it ended up just being a very consensus-driven process. I've done a decent number of consortium transactions over time. And I've just found it to be an asset in the investing business to be open to the types of dialogue and compromise that you need to be able to make to have effective consortium dynamics.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Really was, but the board did a good job of convincing us that at our initial bid, where, like I said, we did have a little bit of room left. They weren't going to transact. And so we came back a couple times. But when we finally came back with our final proposal, it was literally our last dollar, probably even a little bit beyond what we thought our last dollar was going to be. I've been in a few of those negotiations where the other side, either because they're tactical and smart or because substantively they're in the same place gets me to the point where I'm at as high as I'm willing to go. And in this case, we had a consortium, so it had to be as high as we were all collectively willing to go. And then you just find out if there's a transaction opportunity there. And that's in a lot of ways. That's sort of the easiest way to finish a negotiation. Because like, okay, well, we are where we are. And if you like this, we'd love to do this transaction. If you don't, we appreciate the time and let's stay in touch. How did added layers of complexity come into that discussion because it was a group?”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Do you remember any of the dynamics as you were getting close to the end that you said, okay, how are we going to get from where we are to getting this thing agreed? I do sort of remember my business school negotiating class, and I'm not sure that really came into play here for me at least because one of the things that's liberating sometimes in a negotiation is just literally knowing where your last dollar is and getting to the point where you just need to put it on the table. Because look, as much as we love this company and this opportunity, we're also in the business of trying to deliver really good returns to our investors. And so we build our models and we do our math and they're never perfect, but we do our best to think about what is the right risk return opportunity. And we come to a maximum price that we're willing to pay. And of course, then our job is to pay as far below that maximum price as possible. But I do think that this to us felt like a case, and maybe they were doing a great job in negotiating. I don't really know what, I never knew what their reservation price was.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“And a little while is in a couple of days, and so we thought really hard and sharpened our pencils and spent a lot of time with Tommy Frist talking this all through and thinking about opportunities. And we found a few more dollars in our pocket and came back and we had a good back and forth, but we eventually got to a price that the board was willing to accept and we were willing to swallow hard and stand behind, which as they say is probably the sign of a good negotiation when everybody feels really nervous with the outcome in a balanced kind of way. So we were really excited, but we definitely leaned into purchase prices probably well beyond where we thought we were going to need to be when we walked into this whole thing in the first place. How many times did you guys go back and forth in that discussion? It was probably two or three concrete proposals back and forth, obviously with lots of different smaller conversations alongside of those. And if you pulled out your negotiating class from business.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“And actually, one of the hardest ways to do it is when you have an unsophisticated board because they really just don't know what they need to be worried about, which I think can just cause them to need to move very slowly. And sometimes different dynamics happen where time is not your friend in these situations, and sometimes that pace can be harmful to an opportunity to deliver a lot of value to your shareholders. In this case, there were a number of very sophisticated X Fortune 50 type CEOs on the board of HCA who knew how to handle this well. That made them a hard negotiating counterparty, but it also made for a pretty effective and efficient transaction process. And so they basically told us to go away when we delivered our first price. And I think they were serious. I don't think they were posturing. And unfortunately, we didn't think we had a whole lot of room left to move either. And so we actually did go away for a little while.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“To engage in the next stage here, which would involve bringing some more parties in because the next stage is where we would be bringing in some lawyers and some accountants and at some point a few more banks as well. So just increasing the potential for leakage. And so that was stage one is yes, we do think we can deliver an attractive premium. Then we went to stage two where we then brought in some more parties to do some of the more technical types of diligence that we would need to do to be able to have a definitive transaction and financing here. And it was really at the end of that process where we then delivered an actual definitive proposal to the board that had financing commitments, it had a price, and it was a document that if the board decided could be executed and delivered. And that was, of course, when the whole thing then fell apart. So we went to the board with a price. And one of the great things about this board is it was a very sophisticated board. I've done a number of take privates over the years.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think this is a scam, but it was pretty interesting to do a transaction this large without ever actually going on site of the company. The company had great data and systems and we had lots of access to information and great insights from the first family and from the management team. And so we were able to underrate the business side of this. And this is all public knowledge and the proxy statements that were all filed at the time if they're still online anywhere from 2006. But then we went to the board and we said, okay, well, here's the work we've done. Here's the engagement we've had with what at the time was still just the one financing source on the debt side of things, the whole equity consortium was together. And so we do think that this transaction is feasible. And we think it can happen at what would be an attractive premium to your shareholders. We didn't specify what that premium was at the time because the question to the board then wasn't, do you want to sell the company? It was, do you want to sell the sellers?”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Stand behind it, and you can assess whether you want to engage in a transaction like that, but it's hard for you to assess that when it's a theoretical thing. So here's the information that we would need. Here's the work we'd like to do. And here's how we want to stage that to minimize the risk of it somehow leaking out before you as the board decides how you want to talk about it. And of course, there's a little bit of risk involved with that for the board because there's never any guarantee that it'll stay as tight as we might all want it to. But the board thought that risk was worth taking to potentially be able to deliver a lot of value to their shareholders. And so that was how we went. This might be the only time that I've ever bought a company without ever having actually visited the company's headquarters or real estate. All of this diligence happened with the HCA management team. They were very much engaged in it. But in conference rooms in New York law firms entirely done virtually. So we had a lot of confidence. The company did in fact exist.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“HC and help to kick off what became a much more active wave of take privates. So we were on the front edge of that, but it was certainly something we're aware of and thinking about. So the part of that HCA that was probably made it seem potentially less plausible was literally just the sheer size. It was the largest transaction ever at the time and by far the largest that had happened since the late 80s during that first wave of big LBOs. So what happened when you went to the port? The board was in the loop from the very beginning. I think that's always important. Whenever you're engaging in this type of a transaction is you really always want this to be happening with the full knowledge and consent of the board. So the early on conversations with the board, I think we actually even used the words feasibility study. We said, look, we think this could be a way to deliver really interesting value to your shareholders, but we don't want to put you in a position where that has any chance of getting out there until we feel like we can.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Quietly and hoped it would never get traction, and it didn't. It just faded away on its own. At the time, once you have these, whether soft or hard commitments lined up and you can go to the board, how prevalent were public to private transactions back then? There's certainly a lot of them today. We were certainly before the wave where it became a very active market. So if I think over a long, long period of time, public to privates were always happening. I'd done a few before this one, but I wouldn't say they were a growing part of the investing world. They would just periodically happen when there would be an opportunity where a private buyer might see more value than the public buyers and manage to put something together. Shortly after HCA is the debt market's heading right into the GFC got really hot, there was a period of time where lots of different public-to-privates could happen and frankly did happen. But HCA was really on the very, very front edge of that. And maybe you could debate whether”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“But it seems so implausible that anybody could do a $30 billion transaction that even when this person started calling around, he didn't even think about that as one of the possibilities. I think he thought maybe HCA was selling a division or a very large group of hospitals or some large scale but not whole company strategic transaction. And so it never really went past that. But somehow or another, he had clearly gotten that something was going on. But that was probably the closest we came to getting out. What happened in your discussions when you knew that there was noise around this banker? There honestly wasn't much to do because we don't engage in any misinformation or anything like that. So generally the best thing you can do is just sit quietly and let it go away on its own because the more you're making awkwardly worded non-denial denials, the more you're probably just be contributing to the idea that wait a minute, there is something going on here. So I think we just sat quiet.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Put together and underwritten. Now, of course, there's a whole post announcement further syndication process where you can bring in a much larger group of banks once it's out there in the public domain. But it was really that first core underwriting group that was really critical to being able to present to the board not just as this feasible transaction, but now is something that we can stand behind definitively. So as you started having those conversations discreetly, were there any moments where you all got anxious because it felt like word might be getting out. It's funny probably two-thirds of the way through this whole process from a timeline perspective was four or so months of intensive work once we got past the very initial but before we were really prepared to sign up and go public with this. And there was one point when a particular investment banker who follows the space pretty closely somehow got wind of something.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Transaction. We really took a staged process for that. So Merrill Lynch was already part of the group and they certainly weren't going to be able to speak for that entire amount of debt on their own, but they could speak for a relevant portion of it. And more importantly, probably a good litmus test for whether or not they were going to be willing to underwrite a large portion of that. We thought the best approach was to keep it narrow. Let's just talk to Merrill Lynch on the debt financing side of this. If they think they can do this, then let's decide what short list of other banks we need to bring in to basically keep it as small as possible, but to be able to fill out that whole commitment. Because again, the public company board is not going to sign up for something unless they know there's certainty that can happen. And so that was basically the approach we took is Merrill Lynch first managed to get their own internal approvals, not just for the equity, but for the debt, speaking for about a quarter of the debt deals. We decided we needed three more banks to be able to fill out the whole thing. And so then we went to the next three banks and managed to get the whole thing.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Go about that? Well, it was pretty delicate because as you might imagine the last thing a public company board wants is noise around some sort of large-scale transaction before they have conviction that it's actually going to happen. Keeping all of this really tight and private until the right time to announce it was incredibly important to everybody. And part of that was bringing together a really good, trusted and narrow equity syndicate that we thought would be big enough to fill out the capital. Of course, the frisks were an important part of that capital base as well. And so that was us and KKR and then Merrill Lynch at the time were also making pretty large scale private equity investments off the Merrill Lynch balance sheet. It was Bain Capital, KKR, Merrill Lynch, and the Frist family speaking for the equity, but then we also needed to figure out how do we fill out north of $20 billion worth of debt that was going to need to be underwritten for this.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Market's just getting it wrong. If you take a long term view on this, yeah, maybe admissions were up 2% last quarter and down 3% this quarter, but at the end of the day, there is long-term growth in demand for healthcare. And you can figure out how healthcare is going to be paid for through government payers and private payers. And that may evolve over time, but again, fluctuations in uncompensated patient care in the short term aren't really that important. And we all got around the idea that all these long-term value creators pointed to a much higher valuation than where the public stock price was at the time. And we thought there was an opportunity to pull that long-term value forward, be able to pay the current stockholders a really attractive premium off their current stock price and potentially take the company private. Once you got through the business diligence and confirmed that thesis, this feasibility study, you had to jump into.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Because things like flu seasons or fluctuations in patient mix can drive fair bit of quarterly ups and downs and variables like that. So those are important variables to hospitals, but the short-term volatility in those variables is not necessarily linked to the long-term health or strategic value of any given hospital company or hospital system. And at the time, the market was just bouncing all over the place based on very short-term fluctuations in these variables. Tommy was, like I said, an incredibly astute observer of all this, and he helped us build our understanding as well. But we'd always had a thesis that this really strong, well-capitalized, sophisticated urban hospital system should be the right way to deliver tertiary or really high acuity patient care, and that that would be a great platform to be able to invest behind. And so we're all looking at this same set of facts and basically saying.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Feasibility study. Could this actually be done part of that, of course, is underwriting all the business diligence that you need to do to get comfortable with the case you're going to invest behind? But part of that is can you raise the debt financing for this? And part of that is what's the right equity syndicate to make all this happen? So that's really how all this got started. But honestly, when we waded into this, nobody really knew the answer to the question of is this even really going to be possible? What was his impetus for making that call? The whole first family being led by Tommy, they are just tremendously insightful leaders of businesses, but also investors. And I just think he saw the same opportunity that we saw, which was at the moment in that 2005-6 time frame, what public investors and hospital companies were largely focused on were admissions trends and bad debt trends. And those are generally to fairly volatile things within hospitals.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Entry point into that sector, and we looked at lots of them over the years without finding quite the right set of alignment of the stars to make a transaction happen. In parallel with that, we'd known the Frist family for a long time, so we developed a good relationship with Tommy Jr., Tommy Frist, who was over this time period at that point leading HCA. And actually, Tommy called us, was the original genesis of this for us back in probably late 2005, maybe early 2006, with what almost started off as, hey, I've got a crazy idea because the transaction was so large that no one ever really would have thought it was plausible. This is a separate story, but even when rumors started circulating about it a little bit as they often do, those rumors mostly went away because no one even believed it could be possible. So Tommy called us, is it crazy to think that we could actually take HCA private again? And obviously we always love getting phone calls like that. So we launched into what we almost jokingly called”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Important part of that is how do they all fit together when we take our whole team out there with all our relationships and our sector knowledge at any given point in time tend to have between eight and 15 portfolio companies in healthcare. We're always trying to learn what we can from them. And we basically look for opportunities of what are the interesting different subsectors and different dynamics going on in the healthcare space and how can we go build out a really deep knowledge base around those sectors. And then ideally use that to go and create transactions. And so the hospital sector had been one that we've been following for a long time. It's an incredibly important part of the U.S. healthcare delivery system, but it's also a very fragmented industry with a whole range of different management practices, many of which we thought weren't always the most efficient in terms of how do you really bring great care to patients and then build a really good business around that. We were continually looking for what is the right opportunity or right.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Public again sometime in the early 90s and continue to grow up through that time period with this really well thought out core strategy around if we can build the right capacity to be really important hospital systems in any given city then that is going to put us in a position to be able to make the investments we need to make to have the right capital base to be able to attract the right physicians to be able to deliver great care if you can deliver great care then that's going to be a good business and that was the core thesis of HCA that continued to build and build and build over time. How did this come onto your screen as an opportunity public market going private? So any of our industry practices, but certainly also in our healthcare practice, one of the things that we're always doing is really just trying to landscape all the different subsectors out there in the world. And we do think of healthcare very much as an ecosystem. So there's lots of different subverticals within healthcare, but often the more interesting and more”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source
“Better job than I ever could talking about the founding of the company, but basically they saw market need for well capitalized, well-run hospitals, generally in city settings, and they went about building a great company to try to deliver that. So the company grew over time, mostly organically, with maybe a little bit of M&A. Then eventually the company had gone public. I don't remember exactly when. I think either sometime in the 70s. Actually, then the family took the business private in the late 80s, which was really in the first wave of LBOs. It was still wasn't a particularly large transaction at the time. It was a large for an LBO, but still a smaller scale transaction. But the family basically saw an opportunity to take the company private again. Those were in the early days of LBO investing when you could make those investments with very small equity accounts. And if you get good growth on a very small equity account, you can have a very successful investment. And so that turned out to be a very successful investment. They came back.”
2023-08-28 · Capital Allocators · Classic Deal: HCA – Chris Gordon, Bain Capital (EP.335) · IDENTIFIED FROM THE TRANSCRIPT · source