Why remaining private is a competitive advantage for PE firm Bain

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Bain Capital, with $160 billion in assets, is one of the largest private, private equity firms. Despite many of its peers going public, like TPG earlier this year, Bain has no immediate plans to join them. 

John Connaughton is Bain Capital’s global head of Private Equity and co-managing partner. He sat down, exclusively, with CNBC’s Delivering Alpha newsletter to talk about headwinds facing private equity, the current dealmaking environment, and why his firm is staying private. 

 (The below has been edited for length and clarity. See above for full video.)

Leslie Picker: It feels like we’re in this kind of inflection in the dealmaking environment right now. What are you seeing out there as you’re having discussions with your various counterparties?

John Connaughton: It was an amazing year last year, ’21 is unprecedented in many ways. We had a record, which is not unusual in our industry, but it was a record that exceeded any prior record by two times. We had a $1.2 trillion M&A market for private equity. But it’s interesting, in the first quarter of this year, it continued unabated, I think the number’s around $330 billion. So, we’re still seeing quite a bit of activity, despite, obviously, the dislocation in the public markets.

Picker: Are you seeing multiples come down, though, as a result of things like rising interest rates, the cost of debt, the cost of equity becoming increasingly expensive? How are those conversations shaping up?

Connaughton: Always, in these cases, the public markets, they re-rate immediately and we’re seeing that, and we continue to see that as an opportunity. Although, every cycle I’ve been involved with, sellers will take some time before they’re willing to transact at those lower multiples. And so, it does need to season into lower value. So even the tech sector – which we’ve done a number of transactions this year in tech at much lower multiples – it does take time, because the flow for a while will take some time to get the quality assets to reset to lower values.

Picker: Based on your experience, how much time does that usually take? Are we talking? Few months, six months, a year, several years at lower valuations?

Connaughton: If the volatility continues, people will want to wait to see if the uptick will continue and persist. But I think this one, I think will be different. Because in this case, I think we’re going to see rising rates, we’re going to see inflation. And so, the re-rating feels like it’s more permanent in its impact this time. And so, I do think it’ll take six months to 12 months in the public markets and the private markets probably will follow six months later.

Picker: I want to turn to private equity returns because in some cases, in many cases, they’ve usurped other asset classes in recent years, and so therefore, they’ve become a higher concentration of various limited partner portfolios. As a result, are you seeing…