Saturday, January 26, 2013

A Nice Little Pay Day for Bain and Goldman

A Nice Little Pay Day for Bain and Goldman

Bright Horizons owned by Bain Capital just completed its IPO.  Bright Horizons provides day care services.  What makes this story interesting is that Bain has owned the company twice.  It helped get the business started in the 1990s (a success story in the Romney campaign), and subsequently took it public.  In 2008, Bain returned to take it private again, and in recent days reversed the process one more time.  Bright Horizons issued 10.1 million shares and raised $222 million.  Peter Lattman of the New York Times does a great job of laying out the history.[1]  However, there are a couple of details worth sharing that are buried in the prospectus.

While Bain didn’t sell any shares on behalf of its fund investors, Bain received a $2.5 million fee each year for providing consulting services.  When Bright Horizons decided to go public, Bain received $7.5 million as the price of terminating the agreement.  It’s hard to imagine how this fee is justified.  Moreover, the termination fee seems rife with conflict, as Bain controls the company both before and after the IPO.  I don’t see how paying the termination fee is in the interest of the shareholders.  It only enriches Bain.

Goldman Sachs the lead underwriter will not only earn the customary fee for underwriting the deal.  A huge portion of the proceeds ($191 million) will be paid to affiliates of Goldman Sachs in order to retire the 13% senior notes on Bright Horizons’ balance sheet.  The notes will be paid off at 106.5%.  Goldman, of course, earned millions in fees for arranging the debt in the first place.


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