Skip to main content

View Diary: Dear Mitt, (126 comments)

Comment Preferences

  •  Mitt at Bain Capital (9+ / 0-)
    Romney was restless for a company of his own to run, and in 1983, Bill Bain offered him the chance to head a new venture that would buy into companies, have them benefit from Bain techniques, and then reap higher rewards than just consulting fees.[53][46] Romney initially refrained from accepting the offer, and Bain re-arranged the terms in a complicated partnership structure so that there was no financial or professional risk to Romney.[46][55][58] Thus, in 1984, Romney left Bain & Company to co-found the spin-off private equity investment firm, Bain Capital.[56] In the face of skepticism from potential investors, Bain and Romney spent a year raising the $37 million in funds needed to start the new operation, which had fewer than ten employees.[50][55][59][60] As general partner of the new firm, Romney spent little money on costs such as office appearance, and saw weak spots in so many potential deals that by 1986, few had been done.[46] At first, Bain Capital focused on venture capital opportunities.[46] Their first big success came with a 1986 investment to help start Staples Inc., after founder Thomas G. Stemberg convinced Romney of the market size for office supplies and Romney convinced others; Bain Capital eventually reaped a nearly sevenfold return on its investment, and Romney sat on the Staples board of directors for over a decade.[46][59][60]

    Romney soon switched Bain Capital's focus from startups to the relatively new business of leveraged buyouts: buying existing firms with money mostly borrowed against their assets, partnering with existing management to apply the "Bain way" to their operations (rather than the hostile takeovers practiced in other leverage buyout scenarios), and then selling them off in a few years.[46][55] Existing CEOs were offered large equity stakes in the process, as part of Bain Capital's belief in the emerging agency theory notion that CEOs should be bound to maximizing shareholder value rather than other goals.[60] Bain Capital lost most of its money in many of its early leveraged buyouts, but then started finding deals that made large returns.[46] The firm invested in or acquired Accuride, Brookstone, Domino's Pizza, Sealy Corporation, Sports Authority, and Artisan Entertainment, as well as lesser-known companies in the industrial and medical sectors.[46][55][61] During the 14 years Romney headed the company, Bain Capital's average annual internal rate of return on realized investments was 113 percent.[50] Much of this profit was earned from a relatively small number of deals, with Bain Capital's overall success–to–failure ratio being about even.[nb 8]

    Less an entrepreneur than an executive running an investment operation,[57][62] Romney was good at presenting and selling the deals the company made.[58] The firm initially gave a cut of its profits to Bain & Company, but Romney persuaded Bain to give that up.[58] Within Bain Capital, Romney spread profits from deals widely within the firm to keep people motivated, often keeping less than ten percent for himself.[63] Viewed as a fair manager, he received considerable loyalty from the firm's members.[60] Romney's wary instincts were still in force at times, and he was generally data-driven and averse to risk.[46][60] He wanted to drop a Bain Capital hedge fund that initially lost money, but other partners prevailed and it eventually gained billions.[46] He also personally opted out of the Artisan Entertainment deal, not wanting to profit from a studio that produced R-rated films.[46] Romney was on the board of directors of Damon Corporation, a medical testing company later found guilty of defrauding the government; Bain Capital tripled its investment before selling off the company, and the fraud was discovered by the new owners (Romney was never implicated).[46] In some cases Romney had little involvement with a company once acquired.[59]

    "Sometimes the medicine is a little bitter but it is necessary to save the life of the patient. My job was to try and make the enterprise successful, and in my view the best security a family can have is that the business they work for is strong."

    —Mitt Romney in 2007, commenting on job losses at companies that Bain Capital executed leveraged buyouts of.[58]Bain Capital's leveraged buyouts sometimes led to layoffs, either soon after acquisition or later after the firm had left.[53][46][58][59] How jobs added compared to those lost due to these investments and buyouts is unknown, due to a lack of records and Bain Capital's penchant for privacy on behalf of itself and its investors.[64][65][66] In any case, maximizing the value of acquired companies and the return to Bain's investors, not job creation, was the firm's fundamental goal, as it was for most private equity operations.[59][67] Bain Capital's acquisition of Ampad exemplified a deal where it profited handsomely from early payments and management fees, even though the subject company itself ended up going into bankruptcy.[46][60][67] Dade Behring was another case where Bain Capital received an eightfold return on its investment, but the company itself was saddled with debt and laid off over a thousand employees before Bain Capital exited (the company subsequently went into bankruptcy, with more layoffs, before recovering and prospering).[64] Bain was among the private equity firms that took the most fees in such cases.[55][60]

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site