The New York Times published an article Saturday scrutinizing the investments of Bain Capital, the private equity firm co-founded by Mitt Romney in 1984. The piece was critical of Bain’s actions with regard to seven companies that eventually went bankrupt during Romney’s tenure at the firm between 1984 and 1999:
“In four of the seven Bain-owned companies that went bankrupt, Bain investors also profited, amassing more than $400 million in gains before the companies ran aground, The Times found. All four, however, later became mired in debt incurred, at least in part, to repay Bain investors or to carry out a Bain-led acquisition strategy.
Perhaps most revealing are the few occasions, like with Cambridge Industries, when Bain’s investors lost. Lucrative fees helped insulate Bain and its executives, records and interviews showed.”
But as The Times also noted, Bain held a majority stake in more than 40 U.S.-based companies while Romney was at the firm — meaning more than 80 percent of these companies were able to stave off bankruptcy and/or prosper financially as a result of a Bain-led strategy.
For a company such as Cambridge, The Times highlighted the fact that Bain collected more than $10 million in management and advisory fees while the company accrued more than $300 million in debt and Bain’s investors suffered the loss of their $16 million investment. Yet these fees were agreed upon by the Michigan-based plastics company as part of a five-year management services agreement completed with Bain in 1995, according to filings with the Securities and Exchange Commission:
“The Company is party to a five year management services agreement with Bain
Capital, Inc. (”Bain”), dated as of November 17, 1995, … pursuant to which the Company is obligated to pay Bain (i) at the closing of each acquisition of an additional business an amount equal to three-quarters of one percent (.75%) of the
transaction value of such acquisition and (ii) an annual fee of $950,000 per
year, plus out-of-pocket expenses.
Pursuant to the management services agreement, the Company paid Bain fees of approximately $937,000 during 1996 and fees of $950,000 in 1998 and $655,000 of its accrued $950,000 in 1999.”
The Times article concludes by paraphrasing former company officials who say Cambridge was “forced into bankruptcy in 2000,” but that’s not quite how it happened. Cambridge actually entered into a chapter 11 bankruptcy to restructure its debt and was bought by Meridian Automotive Systems, another Michigan-based automotive parts supplier that didn’t go belly-up until after the onset of the Great Recession in 2009.
Bain responded to the article by questioning the selective focus on companies that went bankrupt:
“We understand that in a political campaign some may distort our investment activity by cherry picking a few negative situations while ignoring our overall track record. But, the truth is that less than 5 percent of our companies filed for bankruptcy while under our control, a figure consistent with the broader economy, and revenues have grown in 80 percent of the more than 350 companies in which we have invested.”
President Obama’s campaign has also attacked Romney for Bain’s investments in companies that were “pioneers” of outsourcing jobs, a claim made in a Washington Post story Friday that has since been debunked.
Romney’s record at Bain is certainly fair game for President Obama’s reelection campaign as the presumptive Republican nominee touts his private-sector experience. An analysis of the totality of Bain’s dealings, however, indicates that the private equity firm was successful in avoiding bankruptcy with the overwhelming majority of companies it owned while Romney was at the helm.
Bain charged advisory fees to cover its expenses while attempting to increase profits for companies’ shareholders and its investors, plain and simple, and it didn’t always work. But the suggestion that Romney is equivalent to Gordon Gekko appears to be off the mark.