Bain Capital Explained

So we've established on this blog that Republican policies and Mitt Romney's economic plans have proven time and again to be horrible for the American economy and everyone who isn't already super-rich, but I haven't gone much into Romney's personal record in the private sector or as governor of Massachusetts.  Romney as governor was pretty much a disaster -- a single term, the 47th best job growth in the country, and so unpopular among his constituents he had no chance for reelection.  In fact it's so bad it's never ever mentioned in any Romney speech ever.  Imagine running for president and never mentioning the single public office you ever held -- four years as governor of a state.  Of course, no one in the mainstream media ever mentions it either, let alone Fox News, so hey -- the strategy is sure as hell working for him.  But his private sector life is primarily defined by where he made his millions, as founder and president of Bain Capital, a venture capitalist who in the '80s borrowed money from investors to buy into both successful and struggling firms, transfer that investor debt to the company, lay off boatloads of employees while taking out millions in dividends and "consulting fees", then typically, cash out when the balance sheet looks decent enough to cash out but often too late for the company to not be sinking under the debtload of the very buyout itself, going bankrupt and costing all the remaining employees their jobs.  In other words, the Bain Capital "employees" get rich and get out, the company they attached themselves to, like a vulture, died.  That's how Mitt Romney was as a "job creator" and that's the record he's running on to try to become our 45th president.  Or, if you want to put it more succinctly, Tony Soprano is running to become president.  And that's the "best" part of his resume.  You really have to hate Obama for inexplicable reasons to vote for this.

 

 

Companies’ Ills Did Not Harm Romney’s Firm

By MICHAEL LUO and JULIE CRESWELL

Cambridge Industries, an automotive plastics supplier whose losses had been building for three consecutive years, finally filed for bankruptcy in May 2000 under a mountain of debt that had ballooned to more than $300 million.

Yet Bain Capital, the private equity firm that controlled the Michigan-based company, continued to religiously collect its $950,000-a-year “advisory fee” in quarterly installments, even to the very end, according to court documents.

In all, Bain garnered more than $10 million in fees from Cambridge over five years, including a $2.25 million payment just for buying the company, according to bankruptcy records and filings with the Securities and Exchange Commission. Meanwhile, Bain’s investors saw their $16 million investment in Cambridge wiped out.

That Bain was able to reap revenue from Cambridge, even as it foundered, was hardly unusual.

Left unsaid, though, was that Romney's voracious appetite for business intelligence was aimed at helping him sniff out companies worth raiding. That is, middling companies that had done things like maintained healthy credit lines or cash reserves so that they could actually grow and create jobs when the time was right, and kept their employee pension funds fully capitalized. Those were the juicy targets, because they'd forgone risky expansions and giant executive paydays in order to shore up their companies, and if Bain could take control of them, they could not only drain those credit lines, cash reserves and pension funds, but use the cash to both expand recklessly and pay their executives the gluttonous bonuses by which "business success" is measured these days. Bain Capital was not about turning around failing companies. It was about eating the seed corn of cautious mid-level performers, while cutting their labor and production-related expenses to the bone to make them look "efficient," so that they could be flipped for sale.

Along the way, Bain used the leverage gained by taking over the boards of these companies to declare and pay special dividends to itself, which they could pass on Bain investors to keep them happy. And when cash ran short, Bain directors could order the companies to borrow against the value of the company itself, again handing the cash over to Bain. It all worked out very well for Bain and its investors.

All the while, though, Bain was double-dipping. In addition to the special dividends, bonuses paid to themselves with company cash, and the like, Bain's directors also routinely voted to force the newly acquired companies to pay Bain for "managing" the takeover, and the day to day running of the company, even if where they were running it was into the ground. Again, this was standard practice for Bain, engineered right into its acquisition deals. The Times article explains:

The numerous fees collected by private equity firms have been a frequent lightning rod for the industry. First, the firms charge their investors a percentage of the fund as a management fee, meant to cover its overhead. During Mr. Romney’s tenure, this was initially 2.5 percent and then dropped to 2 percent. Private equity firms also collect transaction or deal fees, ostensibly for advisory work, from companies they buy. These fees are generally collected for major transactions, like the purchase of another company, a public stock offering or even the initial acquisition of the company. A third fee stream comes from annual monitoring or advisory fees that portfolio companies typically pay to their owners, the buyout firms.

Romney, in other words, is hard-wired to do the exact opposite of what the country actually needs. In fact, he's ideologically opposed to it, because in his mind, the benefits of a booming economy belong to the investors in that economy, and he means the cash investors. If all you're doing is earning a paycheck, you're nothing but a drag on Mitt Romney's version of the economy. There's nothing he can do for you, nor is there anything he thinks he should do for you. He's incapable of helping people who don't bring cash to the table as investors. Sweat equity is not in his vocabulary. Romney simply doesn't believe in non-cash stakeholders. He rejects the concept. So if your investment in building something is actually, you know, building it, there are no future dividends for you. It's a cash transaction. You get the day labor rate, and that's that. All future benefits belong to the people who put in cash.

Things are fucked up and bullshit as it is. Let's not make things any worse.

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