A Flea in the Fur of the Beast

“Death, fire, and burglary make all men equals.” —Dickens

Tag: Bain Capital

Romney’s Bain experience does not qualify him to be president!

by pdxblake

A private equity operator, writing a few weeks ago in  Bloomberg, described his analysis of Mitt Romney’s success as a private equity manager and found some interesting details (you might want to go back and read my earlier post on the real problems with private equity for a primer)

Thanks to leverage, 10 of roughly 67 major deals by Bain Capital during Romney’s watch produced about 70 percent of the firm’s profits. Four of those 10 deals, as well as others, later wound up in bankruptcy.

To put this in context, a study (pdf) on the private equity industry by the ICAEW, a trade group for Chartered Accountants in the UK, looked at the overall failure rate of companies acquired by private equity firms by firm size (<10 million pounds [green], 10-100 million pounds [blue] and over 100 million pounds [red])


During the years when Romney was at Bain (1984 –  2002 1999), the failure rate of large UK private equity deals was mostly between 10 and 20%.  Private equity deals fail when the companies end up in bankruptcy, which happens because most target companies for private equity firms are in some form of distress, so this failure is to be expected.  The high returns generated by successful deals is a way of compensating investors for the inevitable failures.

There may be small differences between the UK and the US private equity firms, but seeing 4 of the 10 deals that made Bain and their investors the most money end up in bankruptcy is surprising (and out of line with the overall industry rates of failures of all deals).  If 4 out of 10 money-making acquisitions end in bankruptcy, the total rate of failure in the overall portfolio is likely to be much higher, and much further out of line from the private equity industry as a whole.

The aggressiveness with which Bain used leverage and used the borrowed money to pay itself management fees and dividends likely caused this higher rate of failure of their companies even while Bain profited.  Anthony Gardner, writing in Bloomberg, describes one such company:

In 1992, Bain Capital bought American Pad & Paper (Ampad) by financing 87 percent of the purchase price. In the next three years, Ampad borrowed to make acquisitions, repay existing debt and pay Bain Capital and its investors $60 million in dividends.

As a result, the company’s debt swelled from $11 million in 1993 to $444 million by 1995. The $14 million in annual interest expense on this debt dwarfed the company’s $4.7 million operating cash flow. The proceeds of an initial public offering in July 1996 were used to pay Bain Capital $48 million for part of its stake and to reduce the company’s debt to $270 million.

From 1993 to 1999, Bain Capital charged Ampad about $18 million in various fees. By 1999, the company’s debt was back up to $400 million. Unable to pay the interest costs and drained of cash paid to Bain Capital in fees and dividends, Ampad filed for bankruptcy the following year. Senior secured lenders got less than 50 cents on the dollar, unsecured lenders received two- tenths of a cent on the dollar, and several hundred jobs were lost. Bain Capital had reaped capital gains of $107 million on its $5.1 million investment.

This strategy of making money on companies who later failed as a result of Bain’s actions leaves me unsure of why Mitt Romney’s business experience makes him qualified to help the US economy recover.  As Gardner concludes, “While Bain Capital wasn’t alone in using financial engineering to turbo-charge its returns, it was among the most aggressive under Romney’s leadership. Enriching investors by taking leveraged bets isn’t a qualification for a job requiring long-term vision and concern for public welfare. It is appropriate to point that out to voters.”

And that is why it is fair to question Romney’s business track record which he uses as evidence he would make a good president.  I fear he would do to America what he and Bain did to Ampad.


Romney/Bain Trap, Part One Million: All Of Romney’s Moves Are Bad Ones

by evanmcmurry

I love it when questions I ask are immediately answered. We’ve been chasing Mitt Romney down his Bain Capital rabbit hole, in which the profits he made as a CEO demonstrate a business acumen that qualifies him for president, while he was simultaneously not responsible for a single policy implemented the company of which was CEO that qualifies him to be president. A few hours ago, I asked what Romney does in response to the Bain Capital attacks, as this is one narrative he can’t pivot into jobs, and it doesn’t go away even if the economy remains subpar.

Jon Chait has the next act:

More openly embracing Paul Ryan (whose ideas have taken over the party’s policy apparatus) would help change the argument, at least momentarily. But of course if he did so, Romney would be running exactly to the place Obama was trying to chase him. I speculated this last month, and Greg Sargent did actual reporting to help confirm it: The main point of the attacks on Bain is to soften up Romney for the final argument about policy. The Ryan budget, with its tax cuts for the rich and massive cuts to the social safety net, is so far out of line with public opinion that many undecided voters have trouble believing that Romney would do such a thing. Defining his biography is a way to set up that argument.

Walker insists, “Always be aggressive, moving forward. You’re always better moving forward.” But probably not if you’re moving forward straight into the trap your opponent has set. 


That’s probably why Romney is instead responding by returning to his go-to attack, which is to assail Obama as a “crony capitalist” for continuing longstanding policies of subsidizing green energy. (This is also how Romney replied to the last wave of attacks on his tenure at Bain.) It’s not the silver-bullet response anxious Republicans are demanding. That’s because the silver-bullet response does not really exist.

I’d add that the crony capitalist attack doesn’t sit too well with the “Obama = socialist” one. They’re not mutually exclusive—Obama’s grants/tax deductions to green companies could be seen as a sort of social engineering of the economy—but try explaining that in a 30 second ad.

Romney remains without an out here. Anybody who can think of one, that doesn’t involve Romney closing his eyes and wishing real hard for 10% unemployment, let me know.

More On The Romney/Bain Trap

by evanmcmurry

Furthering my theory that the real Romney/Bain trap—whether it was the Obama campaign’s play along or just a lucky break—has less to do with jobs, outsourcing, etc., than Romeny’s inability to tell the truth over Basic Things He’s Done. Following yesterday’s #retroactive wonderfulness comes this:

The Times presents both sides of the argument. It notes that there is “no evidence” Romney exercised control over Bain in the disputed period, but it also points out that “his campaign has declined to say if he attended any meetings or had any other contact with Bain during the period.” (via Greg Sargeant)

Again, voters are still undecided about whether they buy Romney’s economic credentials as a qualification for president—he polls about even or slightly above Obama on who would better handle the economy, the only issue on which he has any sort of purchase—but they know they don’t trust the guy, which is why Romney’s favorability ratings aren’t even in danger of cresting 40%. Hearing things like “Romney profited from a business but wasn’t responsible for anything it did” and “Mitt Romney was listed as CEO but can’t remember if he attended any meetings” hits that distrust button, hard. “I don’t recall” only works if you’re already President or AG, not if you’re trying to convince people to put you in office.

Moreover, how does Romney respond to this? He’s already had his fingers crossed as tightly as possible without snapping them that the economy tanks. But this is one argument on which you can’t pivot onto jobs or deficits. It has nothing to do with Obama, the economy, or anything else: it solely concerns Mitt Romney and what he’s done and why he can’t even tell the truth about a meeting he attended.


by evanmcmurry

This is fun. All of it. Just let it scroll.

The Real Romney/Bain Trap

by evanmcmurry

Brad DeLong FTW:

In 2002 Mitt Romney decided that he had retired from Bain in 1999.

Yes, you read that correctly. When Mitt Romney took over the Salt Lake City Olympics in February 1999, he intended to come back and run Bain Capital full-time afterwards–and he wanted to make sure that everybody at Bain Capital knew that he was still the boss, that he would be coming back full-time, that nobody should try to take his seat while he was in Salt Lake City, and that everybody should be careful to make sure that their actions were things Romney approved of.

Come 2002, Mitt Romney decided that he was going to run for Governor of Massachusetts. So come 2002 Romney decides that he had retired from Bain Capital back in 1999. Yes. As Glenn Kessler says: “when Romney decided to run for governor in 2002, he received a retirement package that was dated Feb., 1999”.

I wouldn’t be surprised if this was the Obama campaign’s plan all along. It was always a crapshoot whether voters were going to buy Obama’s argument that “Romney=capitalist=bad” over Romney’s argument that “Obama=economy=bad.” But polls consistently show that whatever voters feel about Romney’s economic credentials, they just flat out don’t trust the guy. That goes double for every conservative who voted for Santorum, or, god help them, Gingrich in the GOP primaries because they thought Romney was a say-anything-to-get-elected-type who would sell them out in the general.

And here we have Romney trying to claim in 2012 that in 2002 he really retired in 1999. It doesn’t matter at this point what he was retiring from or what he’s avoiding responsibility of: the fact that he’s so blatantly trying to wiggle out of documented reality tells undecided voters everything they need to know. Screw Bain Capital: this is why Romney’s favorable ratings refuse to crest the mid-30s: because in 2005 he claimed that in 1994 he was pro-life when he  was really pro-choice, and in June he says he’s for immigration policies he was against in January, and so on. This “I really retired in 1999” line confirms everything everybody’s feared about Romney since day one.

Remember my (actually Weigel’s) theory that, for all the awful things Citizens United is doing to our elections, compelling narratives don’t need much money. The gentlemen of the Swift Boat effort required little monetary backing to sink John Kerry’s campaign. So the fact that Obama’s Priorities USA is being out-fundraised a dillion to one doesn’t matter much at this point: for a pittance, Priorities USA can use one ad and a couple of fact checkers to make Romney squirm on command. He’s become the electoral equivalent of a cheap date.