Assessing Bain Capital
I’m in the small camp that thinks that Newt Gingrich’s “King of Bain” video (well, technically his “independent” PAC’s video) is a good thing. It was easily discredited as blatantly distorted, even by the Washington Post which gave it four pinnochios; the attack on capitalism rallied Republicans around Romney; and, it started an education process which will be needed to defeat President Obama’s primary campaign theme of income inequality and class warfare.
Back in my corporate days I lived the video’s story. I was a senior operations guy for a national brewery and then a major food company, going through numerous acquisitions and figuring out what plants to keep and close, what staff to keep and let go, which suppliers to standardize on and which to terminate. I myself was “made redundant” when the brewery was acquired. Some learnings:
- There are four classes of “private equity” companies:
1. Venture capitalists who build things from the ground up. Today these are mostly in technology and come in all sizes; Bain’s focus from 1984 to 1989 was venture and included Staples, DoubleClick.com, and Shopping.com among many others.
2. Leveraged buyouts and growth capital which are heavy in restructuring both finances and operations of sick companies. Particularly in the 80’s and 90’s there was a wave of capitalism’s “creative destruction”, largely engineered by a shifting consortium of firms – Kohlberg, Kravits, & Roberts; the Blackstone Group; Goldman Sachs; Bain; and others who aim to grow their businesses. Among Bain’s couple hundred deals (many after Romney left in 1999 to turn around the Salt Lake Olympics and enter politics) were Burger King, Dunkin’ Donuts, the Hospital Corporation of America, and many mundane manufacturers. Mitt Romney’s contribution included a beneficial restructuring of Bain itself and a rigorous analytical process (The Bain Way) for analyzing companies and markets. Many individuals got hurt; more prospered.
3. Scavengers who can extract value from a dying brand, decaying facilities, over-funded pension plans, and the like - Rick Perry’s “vulture capitalists”. Names like Carl Icahn , Victor Posner, Nelson Peltz ,and Paul Kalmanovitz come to mind, as do hostile takeovers and extreme financial leverage. Bain did not play on this field.
4. Purely financial alchemists which don’t have much to do with facilities, markets, and people who make real companies go. Think Michael Milken, and Ivan Boesky, and the Wall Street investment banks, not Bain.
- Sometimes the “how” is as important as the “what”. Some consolidators provide severance, honor pensions, provide outplacement, encourage retraining, and offer relocation. Others don’t. (My last official act at the brewery was to gather up the artwork that the company owned to send it to the acquirer’s home – “scorched earth”. On the other hand, the food company helped employees at a closed plant obtain financing to begin operations as an independent company.) Displaced people need to be encouraged to relocate, get retrained, and accept (at least temporarily) lesser jobs. Objective stories from Bain – if there can be such a thing – may tell something about Romney.
In any case, Romney does know business and he knows turnarounds. He’s not a Herman Cain who was successful in a couple of related businesses – he has been successful over 70% of the time across a broad range of industries, across a broad geography. His first few years at Bain were as a management consultant. He understands finance, operations, marketing, and personnel – and what makes companies successful.
And perhaps equally importantly, he has the analytical ability and personal fortitude necessary to undertake the restructuring and downsizing that the federal government requires. All of the Republican candidates talk about getting back to “small government”. Romney is the only candidate to have demonstrated the executive experience and temperament to do it.
This week’s video is an advertisement by one of the Political Action Committees vying in South Carolina – Americans for a Better Tomorrow, Tomorrow – Steven Colbert’s creation.
bill bowen – 1/19/2112