Bain's Mike Murphy must dive deeper at Virgin
by James ThomsonIt’s almost 28 years since Mike Murphy enjoyed what might have been the greatest moment of his sporting career.
With his final dive in the three-metre springboard competition at the 1992 Barcelona Olympic Games (watchable now through the magic of YouTube), Murphy pulled off a reverse, three-and-a-half twister that earned scores of 7.5 and 8 from the seven judges.
At the age of 18, in his first Olympics, Murphy had pulled off a remarkable fourth-place finish.
"Barcelona was a magical Olympics,” he recalled in an article for the Menzies Foundation. “I was just emerging on the world stage so the expectations were low and my aim going in was to get into the final – the top 12.”
"When I came fourth I was absolutely thrilled. A lot of people might think fourth is disappointing because you just missed out on the medals, but for me it was a great result. It was the best result for an Australian male since 1924, so that puts it in perspective."
The strengths of a great diver – the dedication required to build up physical and mental strength, the concentration required, the willingness to take on calculated risks – are exactly what Murphy needs now as he leaps into the biggest moment of his business career to date.
As the managing director of Bain Capital, Murphy is spearheading the firm’s bid for collapsed airline Virgin Australia.
Insiders suggest Bain is chasing this deal as hard as it has gone after anything since the US giant started investing in Australia more than 20 years ago, and certainly since Murphy established the firm’s dedicated Australian office in Sydney in 2016.
But while Bain has about $10 billion of its $150 billion global portfolio invested in Australia, there is no doubt that the Virgin deal would be a major step up for the firm in this country.
Big step up
Virgin is a whole new ball game compared with the current stars of Bain’s local show, the Retail Zoo food business (home to the Boost Juice chain) and an upmarket childcare group called Only About Children.
It would also be a big step up for Murphy, who in the grand tradition of private equity investors in Australia has kept a very low public profile since stepping off the diving board.
But company director Mark Richardson, who founded mid-market private equity firm Wolseley Private Equity, where Murphy worked between 2008 and 2014 before joining Bain in Hong Kong, says his former colleague will not be daunted.
“You don’t get to dive off a springboard wearing practically nothing without a tremendous amount of diligence and skill and dedication,” says Richardson, who also worked with Murphy during his stint at Bain Consulting.
“I am sure he’s bringing that to bear at Bain Capital.”
Bain took the unusual step of making a public statement about its commitment to the Virgin bid on Sunday, ahead of the submission of second-round bids on Friday.
And in the process, the firm put Murphy front and centre.
“We have the strength to rebuild an airline which Australians can be confident in – an airline which will meet their needs,” Murphy said in the statement. He declined interview requests on Monday.
That Bain would release any sort of statement shocked observers in the Australian market. It certainly is out of character, but a big, public battle like this needs different tactics.
Three messages
Chanticleer understands the statement was designed to placate perhaps the most important stakeholders in this mess – the staff, who as the largest group of creditors by number could be in a position to make or break any bid.
Bain’s statement had three clear messages for this group.
First and most importantly, Bain emphasises that it doesn’t intend to buy Virgin and flip it for a quick profit. The firm has been telling anyone who will listen that on average it holds on to a private equity investment for between five and seven years, with its biggest Australian investment, in accounting software firm MYOB, on the books for eight years.
Second, Bain seemed determined to make its pitch to the airline's employees very clear.
“We want to bring back the best parts of the Virgin Blue culture and make flying fun again,” Murphy said. “We will be a reliable partner for staff. Without them, there is no airline.”
Richardson says Murphy is the sort of leader who can talk to investment bankers in the morning and staff on the shop floor in the afternoon.
“You have to be good at that if you’re going to be a MD at Wolseley or Bain. You’ve got to be capable of walking the talk," he says.
Wolseley was focused on the lower end of the Australian private equity sector’s mid-market, and Murphy worked on deals including Nexus Day Hospitals, Byron Group and Guardian Early Learning Group.
High achiever
Wolseley may have been playing in a very different end of the pond to where Bain is now fishing, but Richardson argues the fundamental principles of private equity investing are the same. He also says Murphy’s six years at Bain will have stood him in excellent stead.
“The whole experience set that he’ll be building off will be the Bain Capital experience set, which is just extraordinary. I imagine he’s seen his fair share of large, complex deals.”
Murphy will also be drawing on a background that screams high achiever. After his triumph at the Barcelona Olympics, Murphy would go on to win two gold medals at the 1994 Commonwealth Games (and come within one point of taking a third) and compete at the 1996 Atlanta Olympics, before a back injury cruelled his push to make the Sydney Olympics.
He remains heavily involved with diving as the chairman of Diving Australia and a member of the Australian Olympic Committee.
David Lyons, a Queensland lawyer who started diving with Murphy more than 30 years ago, is both a close friend and a fellow director of Diving Australia. He says Murphy’s experience in sport has shaped his personality.
“Murph was very focused from quite an early age, very sure about what he wanted to do and how he wanted to do it. That’s helped him as he’s moved into the business world," he says.
Common thread
Lyon says that in sports administration, balancing passionate people with often stretched resources can be a challenge for a leader. But Murphy has proven adept at building consensus and getting practical results.
“It’s a matter of bringing everyone together in trying to find that common thread, and Michael’s very good at that.”
After his sporting career ended, Murphy got a full scholarship to study law and commerce at Bond University. He joined Bain’s consulting arm in 2002 and two years later won a Menzies Foundation scholarship to study at Harvard, where he completed his Master of Business Administration. It was, he said in 2016, a transformative experience.
"You are exposed to the best of the best students and the Harvard network is very powerful, especially here in Australia," he once said.
Indeed, Murphy will face off against another Harvard MBA in Ben Gray, one of the co-founders of rival Virgin bidder, BGH Capital.
If the shortlist is whittled down from four – US groups Indigo Partners and Cyrus Capital are also in the race – then Bain and BGH look the most likely to remain standing.
The third and final message of Bain’s surprise public statement was about its size.
“We have the strongest capital base of any of the bidders,” Murphy said. “We know aviation isn’t going to return to normal any time soon, but Bain Capital is here for the long haul with deep funding to navigate these difficult times.”
Bain has been involved in several aviation recapitalisations, including Atlas Air, America United and Northwest. Just three months ago, Bain Capital Credit formed an airline leasing platform with Griffin Global Asset Management. And at the start of the year, it outlined a separate plan with a unit of Atlas Air to develop a $US1 billion freighter-aircraft leasing portfolio.
Of course, Virgin would be something else entirely – a hugely visible asset in an Australian airline sector with less than a handful of serious players.
Having the capital is one thing. But the bidder who wins hearts and minds over the next few weeks will need to show it is prepared to stand very publicly beside the airline while it gets back on its feet.
Being in the spotlight is not something private equity firms love. At least Mike Murphy can call on the experience of standing 10 metres above the water, ready to take a leap of faith.