Future Returns: Bain Capital Double Impact’s Approach to the Market - Barron's

Bain Capital Double Impact's areas of focus for its impact-investing funds are healthcare, sustainability, and education and workforce development.

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Bain Capital Double Impact closed a second impact-investing fund after raising US$800 million last fall, and found the experience to be a bit different than the first time around.

When Double Impact, a unit of the Boston-based private-equity firm Bain Capital, sought investors for its first impact vehicle—which closed at US$390 million in 2017—they wanted to know if the firm would deliver private-equity returns, typically double-digit, while helping society and the environment.

This time, potential investors were more curious about how Double Impact was measuring the effect of its investments, says Greg Shell, a managing director at the firm.

“They want it clear how their capital is being put to work to make society better off,” Shell says. “The universe of investors almost takes for granted the ability to make returns.”

One reason is that the private market for impact funds has expanded to include a range of players, including several traditional private-equity fund providers such as Bain Capital, KKR, and TPG. That growth has proved to investors that the right companies do exist, and that “scaling them is a valuable thing to do,” Shell says.

Greg Shell, managing director, Bain Capital.

Bain Capital

The pandemic has shone a light on the importance of this approach to investing, too.

“Whether it’s people making a living wage, or the impact on the environment—everywhere you look there are challenges that need to be met, and both government and philanthropy alone aren’t enough to meet them,” Shell says. “The role for the private sector is pretty significant.”

Double Impact invests in lower middle-market companies in North America that are mission-oriented in one of three areas: sustainability, health care, and education and workforce development. Once the fund invests, Double Impact staff works with its companies to strengthen their impact and to propel their growth. 

The first fund invested in 14 companies, exiting two of them, including Penn Foster, a digital-education platform providing workforce education and training, and Impact Fitness, a franchise of Planet Fitness that offers low-cost gyms in underserved communities. 

Also, SpringWorks Therapeutics, a clinical-stage biopharmaceutical company that Double Impact launched in August 2017 with Bain Capital Life Sciences and other investors, went public in September 2019 at US$18 a share, raising US$162 million; the stock closed on Nasdaq at about US$71.5 a share on Tuesday. 

Penta recently spoke with Shell about navigating its companies through the pandemic, the firm’s approach to impact investing, and the new fund. 

Managing Through Covid

The first quarter of 2020 “was unlike any quarter ever seen,” Shell says. Businesses typically work on a rhythm of providing services for revenue, and paying out funds to cover costs. “To have demand fall off a cliff the way it did—no business is built to operate in that kind of environment,” he says.

Double Impact worked with its portfolio companies to ensure they had the personal protective equipment they needed, and that they could support their employees through the crisis. Rodeo Dental, a portfolio company that provides access to high-end dental care to families “regardless of means, status, or location,” struggled as it worked to stay open for emergencies although it was considered a nonessential business. 

“The financial implications of being non-essential means demand is down in some cases 90% year over year, every single week,” Shell says. 

Fortunately for Rodeo Dental, there was pent-up demand once patients felt comfortable returning. Between such early signs of economic recovery and government financing, Shell says its companies made it through the worst and “the portfolio is in good shape.” 

Investment Approach

In measuring impact, Double Impact looks at a number of “operational” indicators that describe a business’s impact goals and ensure its approach to achieving them is central to how it operates. That means as the business grows, “the impact would deepen and broaden,” Shell says. 

They also work with companies to look beyond their immediate customers (the focus of their impact objectives) to take in the full effect of their business on society and the environment. For instance, “just because you are a healthcare business doesn’t mean you shouldn’t be in tune with how much waste water and energy you consume,” he says. 

The firm uses an impact assessment tool developed by B Lab, a U.S. nonprofit, as a framework for assessing a full range of impacts, from corporate governance measures (are women and people of color on the board), to environmental effects, to how employees are treated.

Double Impact then uses its own tools to further assess how a company is achieving its goals, Shell says. 

“We’ve resourced our team to a greater degree that most impact investors to be value-added owners, such that once we make an investment we are right there with our businesses helping them to be the best versions of themselves.”

New Fund, Same Investment Themes and Approach

For its second fund, Double Impact will continue to focus on the same three themes, but the additional funding it was able to raise means it can afford to spend more. That will allow the firm to spend more capital to grow its businesses and make acquisitions, Shell says. 

So far, the fund has invested in Multi-Specialty HealthCare, which provides outpatient post-traumatic injury care and physical rehabilitation in the Baltimore-Washington area, and TeachTown, based in Woburn, Mass., which provides educational software for students with special needs. 

Serving a broad population—especially vulnerable groups such as the elderly and low-income individuals—represents a “significant opportunity,” Shell says. “The need is great and our ability to deliver access to high quality care is an impact story.” 

In education and workforce development, Shell says, “the opportunity to upscale low- and middle-scale labor is in many ways the biggest issue of our lifetime.” As artificial intelligence and other tech-enabled services gain traction throughout the economy, many workers are becoming vulnerable to being less employable, or stuck in low-wage jobs.

“Our ability is to invest in companies who address that in some way,” he says.

As it exits companies it acquires, and strengthens, Double Impact also works to ensure its former businesses continue to benefit society or the environment through the inclusion of impact covenants in its purchase agreements. 

“A big piece of the covenant we aim to have with any business who looks to buy a Double Impact owned business, [is] that these are things you ought to continue to commit to,” Shell says. “When investors have that point of view, when there’s a role they can play in encouraging this kind of behavior, that’s how we can change the capital markets, and that’s how we will change capitalism itself.”

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