YouSaid · the spoken record

John Connaughton

lines on the record: 86
first: 2021-06-28
most recent: 2021-06-28
sittings or episodes: 1
sources: podcast

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“There is this intellectual curiosity that I think is core to what makes a bane capital investor different than the typical stereotype of our industry. I mean, I think that 80% of our people come from consulting and operating backgrounds. It's like the inverse of the rest of the industry where 80% come from. Finance and investment backgrounds. And the core of what makes somebody go into that industry to begin with consulting is intellectual curiosity, problem solving. And I think that's quite a bit different. Now, by the way, I have a healthy skepticism. I only spent 15 months in consulting, so I wouldn't want that as my professional, although I have a very good friends at Bain and McKinsey and others places. But I think if you take that core intellectual curiosity.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“So actually, there are a number of businesses we've chosen not to be in for this very reason, which you won't see us get into for that reason. And so again, I do think that there's obviously constraints on some of the private public context that doesn't allow you to actually share some of those synergies. But I think the industry expertise is still pretty rich with at least so far what we've expanded into.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“An interesting question. I think it's worked pretty well so far. Maybe answering the question a little bit differently, we're not in infrastructure. We're not in energy investing. There's a lot that we're not in. And frankly, we weren't even in real estate, even though we tried for all 30 of my years up until a couple of years ago when we actually took over Harvard's real estate business.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Are the situations over time where you thought you'd have that additional insight, that additional information, the synergy across these products, where for whatever reason the strategy might have been successful, but the informational synergy just wasn't quite what you thought it would be?”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Related to companies that are being disrupted or have opportunities in tech. We've done security software across both early stage, late stage, and buyouts. So if it is something that can actually reinforce our depth of our verticals, life sciences, tech, industrial, consumer, then it's a great idea. That's one of the reasons why we have a life sciences fund. We have incredible technical expertise. They work hand in hand with our private equity business. Same thing with venture and tech. And so that element of is it reinforcing the core versus just another asset under management? I think that's a second prism that is incredibly important for our expansion.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Were started by somebody who started out in that private equity business you described. So they had to almost learn, if you will, that other business. So the good news that what they had going for them was credibility and they had relationships, but they had to understand the public equity business or the credit business or the tech ops business or the life sciences business. But then we married those folks with laterals and greater technical expertise in those types of industries so that we had the bane capital DNA and credibility and relationships combined with the technical and incredible experience, especially when you go across the globe as well. So that's the first one is you have the right people. The second one is the prism that we look at through each of these new expansions is is it going to help our core business? So understanding where tech dislocation is happening has been enormously valuable for our private equity business.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a really great question because as you mentioned before, that's the first question your LPs ask you why are you doing that? And particularly in these days where there's this race for this holy grail of assets under management. And actually, honestly, we've never pursued assets under management. We're still a little bit of a hyperscale family office. We have all these great businesses, but partly it's because we want to invest in them behind people we actually feel are capable. But the two things that I look at are one, do we have the right person to lead that effort that we have enormous comfort with? We're not a franchise model. Our culture is fairly well baked at this point. And I think it's a good one. And so finding people that identify and want to work within our culture and ultimately can be capable of running that kind of business, that's critical. So we have nine businesses right now. Eight of those nine businesses.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you take that and look at what's called across the strategy level, the unit is a business. And you started at venture and private equity. And as you mentioned, there's credit, there's public investing, there's real estate, real assets. How have you thought about what's worked and what hasn't as you evolved from just private equity to all these other strategies?”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“That people need to take ownership of. Most of our people grew organically in our business because we all started there. I think we value that voice a lot more than I think in another firm that has a lot of laterals. They maybe hire outside consulting firm to drive some of those insights. They don't do it internally in a captive way.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Out of business goal, and ultimately just get more opportunity to then lead the vertical and lead the overall efforts among a broader team. So I think you get that experience. What I'd say that is unique about our culture is that everybody talks about networking and relationships, and you need to have all of that. But we take a lot of our investment strategy edge from proprietary insights, facts, information that we see differently than others. And fundamentally, that comes from the bottoms up. So when we're talking in an investment committee about what do we think about this company or this investment thesis, we're asking the most junior people who are closest to the work to articulate their view. We literally go around the room and have every person on the team talk about what do they see as the bull and the bear. It's not just a partner who's trying to advocate for the deal. It literally is the piece of work that built into that element of investment thesis.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“First of all, we do operate as a team, and the unit of work, if you will, that's out there is a deal team and a company value addition team. And there's obviously a lot of overlap because we have continuity between the two. But as it relates to what somebody can do in an early part of their career, they can be leading deals. But they're part of a team. So it has the benefit of their accountability, but we structure it such that we have two partners on every deal. It's oftentimes a senior and a more junior partner. Same thing with the portfolio company setting. We have a portfolio dedicated specialist working with a lead partner. And so I do think that you do get those.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Critical because we're not a factory, we're not actually using the leverage of analysts and associates and principals to actually delegate decisions, delegate intimacy with the diligence. We need to be practitioners who understand and feel the primary work and make really good investment decisions. And that requires us to be flat.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think that the other thing about our business is that it's all about how effective our people are and how empowered they feel. We take a lot of risk. We're not always right. If we're not making some mistakes, we're not taking enough risk. And so once you get to a larger scale and you have multiple levels, in order to be the apprentice business we need to be, we need to allow people to actually be empowered to take some risk, to actually feel like they are accountable and actually go out and execute. And so we try to become flatter over time. We're a unique animal in that even myself being for 32 years there. I was doing deals up until like three or four years ago. Some of our most senior partners are chairs are still doing transactions. So we like to feel like we're practitioners first, but we've built a scale organization that needs to be managed. And so having that flatness, having that empowerment, that's really.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Are there other lessons that you advise others, say, on the outside of the organization that are kind of going through that same phase that you picked up that you think permeate a lot of organizations?”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think that there is this concept of adding additional voices and insights and perspectives to the room. It seems like it can only help. So having a larger and larger group of people providing input when they're really smart people, it seems intuitively obvious you would think that we'll just get to a better answer. But I've also observed that it can dilute accountability. It can dilute a really good dialogue even. And so we decided that there's a pretty good balance between not having everybody participating in the decision, but having a subset that are focused that could see the continuity, that felt accountable, that could have a really good dialogue. And that's just one example. But I think our process changed a lot 15 years ago to get into a better dialogue such that you're not just undermining the benefit of those voices, but leveraging a subset in a very effective way.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, if you go back to that point in time where it wasn't working and you look back today, A bunch of really smart, ambitious people, and yet, whatever it was, the decision making process wasn't as effective as it had been, maybe what it's become. What were the specific things you learned in getting to whatever it is good decisions, good investment decisions, good business decisions, that you struggled with in that period of fast growth?”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Increase the size of the pie and all of that ethos is still alive and well, but also have single point accountability in our core business units and geographies and even verticals, which I think has helped a lot and made us a more effective organization.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think that one of the things that's unique, we don't have a CEO model. I'm a managing partner at Bain Capital, which means I serve my highly ambitious and highly needy partnerships, desires for what I should do. And the truth is, when we started to build scale and we were in five businesses, we actually got into credit and public equity and venture before anybody else in the late 90s. We acted and operated as partners. And we're a consensus-oriented, team-oriented, collegial environment, but we didn't have the single-point accountability that you really need as you scale. And so working through committees and working through part-time jobs to manage business units or geographies or even the firm didn't work as well, particularly through the GFC. And so I think that what we've done a lot over the course of the last 15 years is really build the benefit of the partnership and that how do we all work together.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“And we could actually build more capabilities. We can actually have a bigger team. We can be more global in our scope. And all of that makes our business model that much more effective.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“We do have the luxury of having investors that have been with us since the mid-80s and have rolled over their capital and created a very large endowments as a result. And they do challenge us all the time about what is the right growth strategy. And I would say even there is an idea that growing too fast is a challenge. But it really is the case that retaining people, if you look at it through that prism and retaining talent, that is, in fact, in their interest to do. And if on top of that you start off with a premise, which I actually believe is true, that you can achieve high performance at scale. There's this natural tendency to believe or feel like that scale is correlated with lower returns. And it is, by the way, but it doesn't mean it's causal, which is to say if you can find the selective opportunities at scale where you can generate high performance, which we think we've done over the course of our history, our large deal performance is as good and sometimes even better.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Capital since I've been there for 32 years. And as long as we keep growing and as we keep providing opportunity for people, it's going to all work out. It's interesting because at that time, one of my peers went on to run and start our public equity business. One of my peers started our credit business. One of my peers reinstituted our venture business as a dedicated business. One of my peers went on to start our Europe business. And then one of the other ones went off to become a CEO of Sierra Leone of three of our companies. It's a little bit of a HR strategy first, which resulted in really a growth strategy.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“I didn't get there at the founding, so there were five partners there in the early days. But there was about four or five of us that came along in the late 80s, maybe a year or two after me, a couple around my time. And of course, we were very sure of ourselves. And we thought, well, gee, how are we going to have your job? How are we going to be partners in this thing together? And he had a pretty flat partnership. And he really felt like growing the size of the pie was the way to win long term. They didn't have a choice being capital but to grow because they had to satisfy the ambition of a lot of probably overly confident young bucks who felt like, look, unless we grow this firm, we're not going to be able to keep our talented people. And I tell that story a lot because every time I have somebody come in my office and tell me, gee, I don't know if the firm can get bigger or where's my opportunity. I say, I've had that conversation with over a thousand people.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“So at some point in that early evolution, any one of these boutique specialist investment managers runs to this point in time where you say, should we just keep doing exactly what we're doing? Or should we evolve into something else? How did that start to take hold at the firm?”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“And the fact that we were able to purchase it based on that preferred stock being something that we would recover for them, it allowed us to have a really great partner. And I think that partnership story in terms of how we talk about carve-outs with counterparties like Tashiba today or others like the big corporations that we see out there divesting businesses today, that one of many important chapters that show how we can partner with those kinds of counterparties.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“But we ended up convincing the sellers that we would be the best operators of the business. And so the sellers, in this case, had $200 million preferred on a business that was losing $50 million. And they asked us to put up some money, at least to show that we had some risk capital. So we put up $7 million for a business that was losing $50. Now, the good news is that we did operate it well. The oil business stabilized. We invested in some really interesting new products. And we ended up making $40 to $50 million by the time we exited to Assea Brown Bavari. But it's a great deal because it had shown at the time that we could do what we wanted to do, which is understand industry and dislocation. We could do what we wanted to do operationally, invested in new products. But actually the thing I love about that story most is that the confidence that the seller put in us because they rolled over a big stake in the investment.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“The way I was introduced to bank capital was we were looking at the oil field equipment industry, which in the late 80s, as you know, when oil went to its lowest level at that point, there was a lot of carnage, a lot of challenges. And Baker Hughes had bought an oil field equipment business, and that happened. All of that carnage happened to this business. It was in the offshore drilling and subsea wellhead business, very exciting business. I spent a lot of time in Aberdeen, Scotland, and Singapore and, of course, Houston.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of my first deals, I do a lot of healthcare investing. And there was a business that a company called Baxter Healthcare, Big Healthcare Company, owned a lot of different divisions. And we did a lot of corporate carve-outs, but this business was one that was an orphan inside Baxter. They'd never invested in it. And they had lost one of their key suppliers. The business was going negative. Their pieces were learning some money. Some were losing some money. And they just wanted out. But what was really important to them is they wanted a partner who would still distribute the products through Baxter. And so we negotiated a carve out three times EBITDA at that time, which obviously today in the diagnostic world, things traded 15 to 20 times. So in and of itself a big opportunity for us. But we also had to do some heavy lifting about turning the business around.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so we've had to get a lot better at that, and we've had to get a lot bigger in scope, and we've had to actually understand what capabilities we need to add. But in the beginning, it was fairly much focused, almost like a consulting project. You do a diagnostic on an industry, you do a diagnostic on if the company is performing relative to its own potential in that industry, and then you put leverage on it. at a price at that time you transact it. And then at that point, we also held our assets longer. One of the unique elements of our firm is that We've always been our largest investor. So we didn't really think about raising money and we weren't great on Wall Street. We weren't great at raising debt. We weren't actually that even that good at being deal makers, but we were really good at this strategy and operation intervention. And so that was what it was like. And it worked really well. And it works well today. It's just a lot more competitive.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, early on, I think it was being really strong and understanding what we could do with the company. So we built out our portfolio group. We knew that was going to be required. We built out the verticals that we wanted to participate in tech, healthcare, consumer, industrial. And so, you know, in the beginning, it was pretty simple. We wanted just to be really good at the three things we could be distinctive around, which is strategy, understanding industry expertise, and implementation. And so we weren't really thinking about scale. We weren't thinking about other business units. We were just thinking about how many companies could we buy that could achieve our return expectations and fulfill a potential that others didn't see. And a lot of those deals, they were proprietary. I mean, that was a different time. You found deals and you made transactions happen. It wasn't as competitive, but the nature of what we were trying to do was far more, I would say, inefficient. And it's what you found on the field.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“But the principles of if you can find a company that you can double profits in, particularly if it's not perceived as one by others that is capable of that, that's gold. That's the gold of our industry is having a unique insight and then putting muscle behind making it happen.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a funny fact because I think we were the 10th largest fund when I joined and I think our first fund was around $37 million. And that was the 10th largest fund. Now mind you today between all of our global, at least private equity funds were about $23,000, $24 billion, including our own capital. So today we're about probably the 10th largest fund. So it was different in scale. But the concept was the same. We were trying to grow top line, double digit, grow double profits over five years. The percentage of equity back then was very small. So if you could double profits in five years, you could make 10 times your money. In fact, one of the big metrics that we all often saw was 10 times our money in five years, which is a 55.8% return, which was what we targeted. We didn't always earn that, but it was part of our targeted objective given operating performance like that combined with leverage could generate”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so that was sort of the nature of our entrance into this industry. And we were quite a bit different. It required understanding industries more deeply. It required understanding strategy. It required understanding how to implement. We actually went into the companies myself. I was executive at a few of our companies even early on in my career for temporary periods. And so it was fairly hands-on and distinctly different than the financial investors that largely came from Wall Street that were in the industry at that time.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, we had 11 people when I joined. The firm founded itself in 1985 and it was a spin out from Bain& Company, the consulting firm. And Bain Company was pretty unique in the consulting business because they were sought after to be implementation experts, not just strategy experts. And so not only did they come up with the ideas, but they had one client in one industry, and then they worked with management teams to implement the ideas. And that was a novel concept back then. So when Bain Capital was formed and when I joined later on, the whole idea behind the firm is different from the financial investors that were largely populating the industry is we wanted to actually think strategically and then implement plans to change the trajectory of businesses we bought. And so instead of earning a fee to do that like we did in consulting, we would want to buy those profits, if you will.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's the end of the buyout business. Drexel's going under Mike Milken is going in jail. There's this KKR deal that has come under enormous negative reputational challenges. And nevertheless, I still jumped in. And ironically, some of my mentors joined me later at Bain Capital a couple years after that. So it wasn't the most interesting time in terms of the GO-GO years, but it ended up being obviously a terrific ride from that point forward.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“A student of the cycles in our business in 1989 it was a particularly challenging cycle. The barbarians at the gate, but at that time I was in consulting. I had some mentors and I was telling them that I love the Bain Capital Place that I got to know because I was a consultant for one of their companies and I want to go join and see what this is all about. They all said this is the worst possible move that you could ever make.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source
“Guest on the second episode of Private Equity Masters is John Coniton, co-managing partner at Bane Capital, a leading global private investment firm that oversees approximately one hundred thirty billion dollars in assets. Founded in 1984 as the pioneer of a consulting-based approach to private equity investing, Bain Capital Today invests across private equity, credit, public equity, venture capital, and real estate. Our conversation covers the early years of private equity at Bain Capital, its growth in products and assets, investment process, competitive environment, culture, and succession planning. We close with JC's insights for allocators and his outlook on private equity. Please enjoy my conversation with John Coniton in the second episode of Private Equity Masters. JC, thanks so much for joining me.”
2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source