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Aiming high, but avoiding disaster

Mr. Romney’s father, George, served as governor of Michigan and later was a Republican presidential candidate. Unlike his son, he also had a reputation for brashness.

When the elder Mr. Romney took over American Motors Corp. in 1954, the automaker was on the verge of bankruptcy. As Mr. Romney later recalled in his book “Turnaround,” his father promptly sold his family’s Detroit home to buy AMC stock, then bet both the company and his family’s future on a fuel-efficient car, the Rambler, that could travel as many as 30 miles per gallon of gas.

“If Ramblers are such great cars,” Mr. Romney asked his father, “why doesn’t everybody have one?”

Marked by ambition and accomplishment, Mr. Romney’s business career also serves as a study in bases-covering prudence. After graduating with stellar grades and a joint degree from Harvard’s business and law schools in 1975, Mr. Romney had little trouble landing a job in business consulting, an emerging field that was heavily recruiting the Ivy League’s best and brightest.

Nevertheless, Mr. Romney also took and passed the Michigan bar exam — if consulting didn’t pan out, he calculated, he could always work as a lawyer for the auto industry.

Years later, the head of Mr. Romney’s consulting firm, Bill Bain, asked him to head a new kind of investment firm, based on a novel concept of investing in startups and distressed companies, improving their performance through rigorous analysis and then selling them for profit.

The venture was called Bain Capital. It eventually would surpass all expectations, making Mr. Romney a multimillionaire.

Mr. Romney said no.

Mr. Romney had a young family. He was doing quite well as a consultant. He did not want to risk his reputation or earnings on a fledgling company, especially one with an unproven business model.

Mr. Bain made a second offer: If the company failed, Mr. Romney could have his old job and salary back, plus any raises he missed. According to “The Real Romney,” Mr. Bain also promised to fashion a face-saving cover story saying that Romney’s return was “needed because of his value as a consultant.”

Then, and only then, did Mr. Romney say yes.

At Bain Capital, Mr. Romney largely avoided investing in high-risk, high-reward startups, preferring to acquire established businesses that could benefit from data analysis and improved management.

The firm also mitigated risk through leveraged buyouts. How so? Rather than purchase companies entirely with Bain money, Mr. Romney and his partners would invest a portion of the purchase price and borrow the rest from banks, with the acquired companies themselves responsible for loan repayment.

In a $200 million deal for Accuride, a company that made wheel rims for trucks, Bain Capital invested just $5 million and borrowed the rest of the purchase price. After Accuride’s earnings rose 20 percent under Bain’s management, the company was sold for a $121 million profit.

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