Private Equity 101: A Mitt Romney Primer
There’s been a lot of nattering in the news lately about Mitt Romney’s private equity (“PE”) history with Bain Capital. A whole lot of the conversation is distortion, lies, and poor understanding of exactly what comprises the PE business.
Individuals or institutions invest money in — among many other investment vehicles — the stock market (“Public Equity”) and in privately held companies. Investments in privately held companies come in several “rounds” of investments. Early rounds (generally venture capital) of investment are in companies that are just getting off the ground and which may not have any revenue or profits at that time (or for several years). Generally, later rounds are invested in companies that already have revenues and may be profitable.
Investors in both public and private companies are taking a risk that the business of the company (and to some degree the markets for securities, either in general or specific to the company’s industry) will grow enough to improve the price of the securities that were purchased at the time of the investment in order to provide an adequate return. The earlier in the company’s life cycle, the riskier the investment — in other words, the more likely that such an investment could be a partial or total loss. The later in the life cycle (phases are determined by time in business, size, profitability, industry acceptance or how well-suited the business is to its niche, and a host of other factors), the less “risky” the investment tends to be.
With public companies, it is easy to buy and sell ownership shares: just call your broker. With private companies, it is far more difficult to liquefy the investment.
Bain Capital was formed by a group of professionals at Bain & Company/Bain Consulting (a very well-regarded firm) in the mid-1980s. The company intended to participate in a whole new subcategory of PE firms engaged in a practice called a “leveraged buyout” (“LBO”). An LBO, in short, is a buyout of a company (public or private) using both debt and equity (investment) capital. LBOs rely on using a lot of debt relative to the equity investment to generate acceptable rates of return.
Because of their constraints of repaying any debt used in an LBO, PE firms will generally invest in businesses that are already growing and successful, companies long past the initial venture capitalizing phase of their life cycles. Most PE professionals team up with existing management, but often install their own management team to work to accelerate the growth of the business.
What do growing businesses generally do? Yes — they create jobs! The new employees are needed to handle the growth in the business, which then helps the economy grow.
There’s no reason for any PE firm to want to own a troubled company unless it believes that its particular skills could turn the business around and — wait for it — for those improvements in operations to help it grow and add jobs.
Bain has been (inaccurately) characterized as having bought companies merely to break them, with tongue-waggers claiming that the Bain method was to sweep in, fire all the employees, and unload the assets in a quick fire-sale in the name of “restructuring.”
So very false! This makes little sense intuitively, as successful companies aren’t broken up and sold (generally speaking, why would anyone do that?), and companies in trouble are, well, they are in trouble.
ALSO READ:
http://www.americanthinker.com/2012/01/newt_and_the_10_pm_question.html
Romney does not persuade people of these points with pundits doing the apologetics/rationalizations for him.
He evades and quivers on the little things, like tax returns and speaking fees.
He was like a deer-in-the-headlights at the last debate at the first sign of the slightest criticism.
Romney is a LOSER candidate.
GINGRICH is the strongest of the GOP to beat Obama.
Since he supported the socialist sub prime mortgage scheme which led to the housing bubble, the near collapse of the banking system, the election of Barack Obama and the Dodd-Frank regulations which are stifling a recovery, Newt Gingrich is wholly unqualified to be the GOP nominee.
This is separate and apart from his Big Idea idiocies including his enthusiastic support for the theory of AGW, his attack on Judicial Independence (hauling Judges before Congress to explain their decisions) and others too numerous to mention, his latest being replacing unionized janitors with 13 year olds.
The only thing Gingrich brings to the ticket is the ability to ridicule Obama. He is like Palin in that respect. Since the election will be decided by Independents who voted for Obama, while ridiculing Obama may good theater and emotionally satisfying, it won’t help him win the election.
Further, with his education in law and business and his business and gubernatorial experience, Romney is the one with the talent and temperament to do what is necessary to turn America around. He and Paul Ryan will work well together.
A Romney Presidency won’t help the careers and bank accounts of Limbaugh and Palin but it will do wonders for the nation and many even improve the image of the GOP, making it seem more cerebral and less vitriolic.
“Since he supported the socialist sub prime mortgage scheme which led to the housing bubble, the near collapse of the banking system, the election of Barack Obama and the Dodd-Frank regulations which are stifling a recovery, Newt Gingrich is wholly unqualified to be the GOP nominee.”
you might try avoiding the bald-faced lies on this forum Terry. Just a suggestion.
Read Reckless Endangerment and learn the truth behind the current economic malaise (to which Freddie Mac Gingrich contributed, even if not on the scale of his Democrat Party insider friends).
Every word is in fact the truth. Be decent enough to specify the alleged lies and use your real name if you are going to call me a liar.
“he supported the socialist sub prime mortgage scheme ”
It’s an obvious lie.
What Gingrich said about Fannie and Freddie at the time was that private / public partnerships can be an effective business model.
If you had stuck to that, you wouldn’t be a bald-faced liar.
I wouold have to agree with anonymous in that you wouldn’t recognize truth. I’d suggest you refrain from visitng those liberal websites. Newt’s not my favorite, nor Romney for that matter, but lying to push people off is another matter. BTW either would be better than Obozo.
“Newt Gingrich in 2007 extolled the virtues of Freddie Mac, saying he would be “very cautious” about changing the way the mortgage-finance company’s public- private business plan operated. At the time, his company was advising Freddie, and received around $1.7 mln for services.”
http://www.bloomberg.com/news/2011-12-01/freddie-mac-efficiency-could-put-man-on-mars-gingrich-once-said.html
Your claim, “What Gingrich said about Fannie and Freddie at the time was that private / public partnerships can be an effective business model” is not completely true, also.
To be fair, Gingrich has since changed his position and now calls for a broad change to the mortgage system, as anyone would after 2008.
Here, Terry. Here’s your boy against Obama:
http://www.youtube.com/watch?v=mv078A36t7Y&feature=player_embedded
bwahahahahahahahahhahahahahahahaahahhahahahahahahaaahahahahahahahaha
* What a Romney-Obama debate would be like:
http://www.youtube.com/watch?v=mv078A36t7Y&feature=player_embedded
* What Huntsman had to say about him a week ago
http://electad.com/videos/jon-huntsman-mittstant-replay/
* What McCain had to say about him in 2008
http://www.youtube.com/watch?feature=player_embedded&v=IS33Hkgnls4
Well, let’s do a little math. Among the American people, about 35% are going to vote Democratic regardless. Another 25% are going to vote Republican regardless. So, who is the target audience for any presidential candidate? Yep, the Independents who more or less occupy the middle. They are interested in: 1) the economy; 2) jobs; 3) entitlements; 4) military; 5) the economy; and, 6) everything else. Double counting the economy was intentional.
Romney comes across to the middle as strong on the economy, jobs, and the military, and o.k. on the entitlement questions. He stays away from everything else. He has one wife, and no [so far] known other woman problems. His religion is a problem only for those focused on #6 above. On the other hand, core family values are excellent.
Gingrich is super on #6, o.k. on the economy, military, and jobs, and so so on entitlements. He has problems with immigration issues. He frequently speaks first and thinks later. Newt is on wife #3, who was his mistress for a number of years. Core family values, not so much.
For almost every reader of this blog, the bottom line is: “Beat 0 in 2012!” The rest, as they say, is commentary.
Oh, *yawn*…the old “baggage” schtick!
Who REALLY has baggage is the man who is related to Solyndra, LightSquared, Fast and Furious, Rev. Wright, Bill Ayers…and Larry Sinclair.
And GINGRICH is the *only* one of the bunch strong and articulate enough to clearly lay this persuasively before the American public.
So *spare me* the crocodile tears. You want to beat Obama? VOTE GINGRICH in 2012.
Gingrich would be portrayed as an extremely mean fringe right idealogue who cheated on his wives, and who was drummed out of Congress on ethics charges.
Romney would be portrayed as a Wall Street fat cat who was unethical in business, who will say anything to get elected, and who belongs to a religious cult.
They both have significant baggage, as would ANY republican candidate in 2012 (For example, Lincoln would be portrayed as an inexperienced 1-term, 1-issue congressman who had never won significant office, who is frequently clinically depressed, with a mentally unstable wife, and who had spent years of his early manhood sharing a bed with another man.).
Newt’s and Romney’s electablility will come down to the ability to penetrate the fog of lies the marxists will create about the economy.
The fog of lies is thick too. And just like Reagan (and GW too)you have to just go forward and ignore them, go around them, talk plainly and clearly . . . unfortunately something that Romney is not particularly good at. That doesn’t mean he can’t win, just that he has his work cut out for him. Gingrich destroying Obama in debates would be a delight (probably Santorum as well).
Neither Gingrich or Romney would have a chance against Obama. Gingrich’s personal transgressions would deep six him in the general whether he tried to downplay them or “own” them and say he did it but he’s reformed. He won’t get any independent voters.
Romney will get picked apart because someone will do a detailed analysis of his time at Bain, and point out the cases where Bain cut up companies and sold off the assets (which is fine) but still made millions and millions in profits (which is NOT fine, at least optically). Plus Romney just does not have the same ability to fire up voters that some of the other candidates have. He will never get a standing ovation like Newt got Monday night, and he will never get cheered before he even speaks like Dr. Paul does.
Ron Paul is really the best chance to win the general election, because he pulled in twice as many independents as Romney did in both Iowa and New Hampshire, he pulled in more Evangelicals than Santorum did in Iowa, and he destroys all other candidates in young and first-time voters.
The three demographics that Obama used to win the 2008 election – independents, young voters, and anti-war democrats, would vote for Ron Paul in 2012, but they won’t vote for any other GOP candidate. If someone like Romney gets the nomination, those people will either vote for Obama or just stay home – either way we lose the election. At this point it’s crazy for people to keep calling Ron Paul unelectable, because in addition to the polls saying he does just as good against Obama as Romney does, Romney has no chance to get those three key demographics.
Good luck explaining “private equity” to general election voters…
Yeah, he’s gonna have a tough time with it and hasn’t impressed thus far…
I found the best explanation of Bain’s business was describing them as a chop shop…er, “recycler” for dying companies. Their role is not that different from the automobile junkyard that separates out the usable parts and cores from the rusted out hulks of old cars. If the cars get crushed whole then the good pieces are lost. Similarly, those businesses were dying anyways and would take the good operations down with them. The goal here was to save the good parts and hope that the sum of the “unlocked value” was greather than the original price of the dying firms. That explanation seems to satisfy a few friends, family and workmates around here.
nice analogy…heh
If you want to use the old car analogy, then this is how it would go. You own an old junker that you might be able to sell for spare parts. Friendly Bain comes by and talks you into taking out a $25,000 title loan against the car. Using this $25K you write them a check for $23K. Once the check clears, they come by again and poke around under the hood. “Looks like you could sell that carburetor for a few bucks. Give this guy a call. It’s been great doing business with you.”
You went a bit extreme on that, but it is a pretty good rebuttal to their argument.
Other than being off by a couple orders of magnitude and ridiculously out of proportion in every way your description is impeccable…
Your argument falls apart when,
“Friendly Bain comes by and talks you into taking out a $25,000 title loan against the car. Using this $25K you write them a check for $23K.”
Was the car owned by a kindergarten dropout by any chance? You have no clue as to how businesses work. Just another Romney hater.
So are you saying that Bain didn’t still get their pound of flesh even when the companies they were “helping” went under?
As an high-level employee at a bunch of start-up companies, I know venture capital from an insider perspective, and while there are some that actually DO intend to take young companies and make them successful, there are more that are just in it to make a buck in the short term and do not have the long-term success of the company as a goal.
But regardless of which of those two Bain represents (it’s the second one, but even if it’s not)being an exec in a VC does *not* qualify as “business experience”. Real businessmen take an idea, build a company around it, and build a team by hiring people.
On the other hand most VC firms are guys who have money but *don’t* have the business sense to start their own company, so instead they profit off of other entrepreneurs that DO have business sense, like parasites.
Perhaps I shouldn’t tell you this but “successful” companies are liquidated on a not too infrequent basis for various reasons.
First, let’s assume you own a patent with huge potential but you won’t license the patent to me. You want to build the next great widget yourself and you muddle along with a few workers accomplishing very little. Ultimately, I buy your company, close your factories, fire your workers and build the widget with the patent that I now own in my factories. I, my investors, and my workers make vast fortunes.
Second, let’s assume that you have a great idea for a product or service and come to me seeking capital to expand. I look at your idea and see that you’ve completely missed the opportunity, you’ve focused on a minor aspect and have ignored the vast potential. But, as it’s your idea, you won’t listen, you know how best to implement it. You simply don’t want to make billions from your million dollar idea. So I buy your company/idea, fire you, and make a fortune for me, my investors and my workers.
Third, let’s assume that you’re a new competitor. You’ve got a viable start-up business, you’re pushing me to make changes, improve efficiencies and perhaps eating into my profits. I use government regulations to force you out of business, you’re small and you can’t afford the compliance costs, and I re-establish my monopoly.
The first two examples are the free market working, capital efficiency is improving. The last is “crony capitalism” where capital moves to less efficient operations that we’ll just call “GM”. The first two will lead to more jobs and a growing economy, the last will lead to financial collapse. But we’re afraid to talk about the first two because initially more workers got fired; instead, we just want to assure everybody that we’re just like “GM”. Oddly, people just don’t respond…
You wouldn’t be able to buy the company, liquidate it and make a profit because it would never be priced below the value of it’s assets.
Companies that are losing money and have stubborn executives very well can wind up priced below the value of their assets.
The companies in #1 and #2 have no significant assets. What they have are potential. The first company has a patent that *could* be extremely valuable but the owner doesn’t know how to realize the value. The same holds true for the second company – the “asset” may be a patent or merely a concept that, if successfully implemented, would make a fortune. But a great idea that’s poorly implemented has no value.
The question is what is the company worth today and what *can* it be worth. By your argument the company will always be worth $X, which is incorrect. A company’s value will rise and fall based on management decisions, work practices, competition, technology, innovation, regulations, and “Acts of God”.
ChrisS is correct. Today, Kodak filed for bankruptcy protection. Ironically, they invented the digital camera, and failed to foresee its importance in the future of photography. Some of the assets they are selling are their patents, to meet their financial obligations.
https://news.fidelity.com/news/news.jhtml?cat=Top.Investing.RT&articleid=201201182253RTRSNEWSCOMBINED_TRE80I08G_1&IMG=Y
Markets, particularly private ones, aren’t that efficient.
Sorry, but the articles I’ve read in the media aren’t saying what you’re claiming:
QUOTE-Bain has been (inaccurately) characterized as having bought companies merely to break them, with tongue-waggers claiming that the Bain method was to sweep in, fire all the employees, and unload the assets in a quick fire-sale in the name of “restructuring.”
No, the articles I’ve read are clearly saying that Bain moved in and loaded a well-established, century-old steel firm with new debt and then paid a substantial portion of that new debt out to Bain’s investors. That then left the firm too debt-ridden to handle a downturn in the economy.
The articles aren’t claiming an intent to destroy firms, merely an investment policy that put those firms at much greater risk in order to give a quick and high rate of return to Bain’s investors. Bain, they’re saying, isn’t guilty of malice, just of greed and an indifference to the long-term welfare of those company’s employees, along with perhaps a more than a little incompetence. After all, the steel firm in question did go out of business under Bain’s control and that’s an almost textbook definition of managerial incompetence.
In short, what has some Republicans all starry eyed, Romney’s great personal wealth, doesn’t prove he’s a brilliant executive. How his acquired that wealth demonstrates precisely the opposite: an indifference to the suffering of others along with a managerial incompetence that hurt others. And keep in mind that the federal government is in far worse shape than the companies Romney ‘led’ into bankruptcy. Romney, by his resume, won’t solve our woes. He’ll make them worse.
One final note. The election rhetoric of 2012 hasn’t yet begun. When it does, I suspect we’ll find that Romney not only isn’t the most electable Republican, he’s perhaps the only prominent Republican candidate whose biography makes his virtually unelectable. Even an honest description of his career makes him someone most Americans don’t want in the White House. Given our troubled economy, the last person we want in the White House is someone who ran up huge debts, badly managed businesses into bankruptcy, and put people out of work.
“No, the articles I’ve read are clearly saying…”
And of course anything in the “papes” must be true. I mean the NYT/WaPo/LAT/LeMonde/DieWelt/SAZ/etc. would never, eeeeever distort the truth, make up facts or outright lie to make a point, would they?
“No, the articles I’ve read are clearly saying that Bain moved in and loaded a well-established, century-old steel firm with new debt and then paid a substantial portion of that new debt out to Bain’s investors. That then left the firm too debt-ridden to handle a downturn in the economy.”
How does a company just “move in”? That happens by either buying the company outright or buying their stock to get a controlling interest, meaning money up front is required. And, under a “hostile takeover” the price of the stock rises pretty fast, much higher than it’s worth. How do you “load a firm with new debt”? You go to a bank or another group of investors and you BORROW the funds needed to keep the company viable or for expansion. That means the lender will need to investigate the borrower (under the new management) to determine if the loan WILL EVER BE PAYED BACK. No one will ever lend any money if the loan is not expected to be payed back. Your scenario is a fairy tale, used to scare school children and idiots. Bain may have been able to get away with this once, but once the word gets out Bain, or anyone associated with them, would never be able to borrow another dime, ever.
“No, Bain Capital didn’t buy companies to destroy them. That doesn’t even make sense. ”
Actually; When you understand, as most Americans do, that it takes $96,000.00 worth of parts to produce a $36,000.00 car, and that for most car thieves the parts are valued more than the whole car that they steal – because often the sum of the parts has a greater cash value than the whole…
It actually makes perfect sense.
And that’s why Romney is in such trouble trying to explain it.
In general whole cars have greater value than the sum of their parts, otherwise there would exists companies that bought whole cars and parted them out. In some cases that is true, which is why junkyards are in business.
Car thieves value the parts more than the entire car because they are stealing the car, their initial investment is essentially zero. Also, parts are harder to trace and thus easier to sell.
Your analogy is fundamentally flawed.
Then I defy you to go to the Parts counter at a Car Dealership, or to any Auto Parts store and purchase the parts for less than double the cost of the new car.
You cannot do it. Period!
You mention but soon forget “parts counter at a Car Dealership, or to any Auto Parts store”. There are hidden costs associated with keeping parts at an auto parts store – transportation to the site, building upkeep, employee wages/benefits, local taxes, inventory maintenance, etc. that an auto manufacturer doesn’t have to worry about. The dealerships make money by inflating parts costs because the know the little ol’ lady down the street will bring the car back to them for repair. The auto manufacturer knows how many cars he will build in one day, and when the parts are needed he slaps them on. The auto manufacturer’s parts come directly from the parts manufacturer, not from the local auto parts store.
Add to that, most Blue Collar people know the truth of this and that is why the argument makes sense to them!
Otherwise the accusation wouldn’t hold water on its face!
Most blue collar people have never owned a business, either.
This article might as well be a campaign commercial for Romney.
“No, Bain Capital didn’t buy companies to destroy them.” This is the straw man that nobody claims.
More than half the article is a paen to venture capitalists, a form of investment nobody questions.
The LBO form of investment is the one being questioned, and the blow-kiss author paints LBO’s almost like a charity.
The facts are that Tim Tebow LBO’s don’t exist. They are all about making money for the investors, not about saving struggling companies, and there are plenty of LBO’s that take it to the predatory level, despite what the author says.
A more honest article would have focused strictly on LBO’s, describing the temptations and methods to strip assets or otherwise exploit the target businesses (through debt, for example), and woud have attempted to determine whether Bain sometimes went too far or not.
If that had been done and a conclusion had been reached that Bain acted honorably in almost all of its transaction, the article might be persuasive.
But blowing kisses at Bain and Romney isn’t persuasive at all.
A more honest article would’ve written about what Bain actually did instead of what he bet they did or did in theory. Calling Gordon Gecko.
Gordon Gekko? What kind of asshat would bring in a Marxist Hollywood trashing of the free market to support an attack on BAIN…(not Romney)?
Why is BAIN in the conversation at all?
If Romney isn’t the issue and BAIN is the issue…then somebody is lying through their teeth about why this is a topic of conversation. Attacking the free market is an imbecilic and mindless “monkeys throwing feces” in any direction loony bin.
Maybe you could articulate the precise moment in which capitalism became perfected and that no additional criticism of it can be allowed. Should there be a law that prevents people from criticizing any exercise of capitalism?
I know, Capitalism was perfected before the 1854 creation of the Republican party which was in part created to attack relentlessly one aspect of it that was ongoing at the time. making money by enslaving others.
Maybe it was perfected in the late 19th century at the time that the Robber Barrons had near total control of huge swaths of the economy ruthlessly destroying any smaller competitors from ever having an opportunity.
Maybe it was perfected in the early 20th century when large corporations would lock the doors to their factories and if a fire erupted many died or were maimed as well as many other unsafe working practices.
So, what was the moment that capitalism became perfected?
Wow!! Did you see the sudden pop in straw futures today!? Your argument is probably the reason for it.
Look, Free Markest like Free Speech should be supported.
But while usning the N word, or general vulgarity and heavy employment of the F word are both covered under free speech, we would all agree that to have an issue with such is not an attack per se with Free Speech so much as an attack on the ABUSE of Free Speech.
The same holds true with LBO’s regarding the Free Market and Capitalism. There are Abuses that while Legal are not necessarily Moral nor Right.
Bain Capital is a private equity firm. Their job is to secure (borrow) money for troubled company’s, take their part according to contract, and leave the company with the responsibility of paying of the accrued debt of the borrowed money. Those who make it through this kind of reorganization make it, and those don’t go under. Either way Bain gets theirs and doesn’t depend on the results for economic benefit.
Go and research what Bain does instead of just assuming. Start with their own damn website and move on from there. Bain raises funds from pension funds, endowments and other investors and uses it to buy companies. Often they buy publicly traded companies and takes them “private”. They then hold them for many, many years. They’ve owned some companies for 20 years.
Stop huffing DNC glue fumes for a while and start thinking.
I can’t believe the ignorance of so many people. Go and look at their website :
http://www.baincapitalprivateequity.com/Investments/Default.aspx . There is a list of companies that Bain Capital currently owns. These guys buy companies, improve them and HOLD THEM for the income stream. They raise funds from pensions, endowments, and private investors. Stop huffing the Newt hot air and put on your thinking cap. Do your research and stop listening to DNC carpet baggers.
[Slap across the face] Thanks, james. We needed that. Seems like none of us even bothered to research Bain on their own website. Must be too strenuous.
Was there a reason for mentioning what former House Majority Leader Pelosi said?
This whole line of attack on Romney depends on the economic ignorance of voters. Sadly, considering what some of our elected officials think (e.g., the ATM destroys jobs), this seems a safe bet. The bottom line is that a business needs three components working together; capital, management, and labor. Liberals only care about “labor” and villify the other two necessary ingredients. They also don’t believe in creative destruction and they think that failing companies should be rescued to “save jobs”, arguments that are clearly debunked by Hazlitt (“Economics in One Lesson”). PE folks typically take over companies that are already distressed and if they can turn any of them around, they should be hailed as heroes. If the company can’t be saved, then of course they dismantle it and try to get as much ROI as possible. Why? So investors are encouraged to continue investing and so that there is money available to try to rescue the next company. Where, exactly, is the problem here?
Dump Romney NOW – before it’s too late:
http://decoded.nationaljournal.com/2011/12/romneys-1994-problem.php
Be sure to watch the 34-second video clip at the link.
So, I guess this is the argument. Just because you can, take $5,000,000 and buy a company, do a few tweaks to improve its bottom line temporarily, use that temporary improvement to convince a rating agency in your pocket to give it good reviews and thus sell the bill of goods to bond buyers for $100,000,000 and use that capital to give yourself a 40% dividend, to hire your sister company for a few tens of millions to give advice for a couple years, and in the period between when you got the bonds sold and the last of the money disappearing, liquidate your connection to the company and put that money into your next activity, does not mean it is a good thing to do, because, well, SHUT UP!
Taking a $5m investment and turning it into a $50M profit without adding any actual value is not what I call capitalism, particularly when you look where that profit came from, investors. Now I understand the argument that is sullies your reputation to do these things, but that is why lawyers like Romney and Bain only do it a few times out of 100, but that is where they get the base capital to do things like Staples from. So what if they suckered and screwed a few investors out of a few hundred million, in the end they created Staples and Dominoes? That means they are unassailable!
You articulated this so well. It seems to be the piece that’s missing in these disucssions around the issue. Obama/liberal press will kill Romney with the impression that he’s the poster-boy of corporate manipulation of monies in certain cases (whether legal or not is irrelevant).
You are really cornering the straw market to build all those men, aren’t you?
I notice that you are a straw man all by yourself. No identity at all. Just a flame thrower that likes to incinerate yourself I guess.
Before I retired two years ago, I spent over 20 years as a “turnaround” consultant. Turnaround projects (bringing unprofitable companies back to profitability) and the various types of buyouts can be done in good ways and bad ways. I’ve seen both, and the overwhelming majority are done in good ways. That is, in the long-term health interests of the companies purchased.
I want to make it clear that I am in no way a fan of Romney’s politics (especially his political history) and that I think that highly leveraged buyouts are one of the least desirable ways for the purchase of a company.
I have no idea whether Bain Capital’s approach was constructive (favorable to the long-term health of the companies it bought) or not. It probably was, but I’m open to *solid* evidence otherwise.
David Horwich, the author of the above article, did a very good job of presenting a general overview on the subject (“Private Equity 101″) in less than 1,000 words. Mr. Horwich did note that there are some exceptions to what he presented. But he wrote an article, not a book.
Having said all that, my point is that it’s obvious that some of the above commenters don’t even have a basic understanding of what Mr. Horwich’s article is about. For example, I saw opinions related to LBO’s that make it obvious that the commenters don’t even understand the definition of an LBO. Or who is responsible for paying back the loan. Or other basics, the ABC’s, of finance.
But ignorance of the subject sure didn’t stop them from offering definitive statements and opinions, did it?
I suspect that there is a lot of politics behind some of the comments.
———
Again, there *are* some entities that purchase companies that do more long-term harm than good. Probably the most classic are those who purchase a company (profitable or not) and make purely arbitrary cuts in staffing and other expenses. They slash preventive maintenance, product development and other necessary functions just to get a short-term spike in the bottom line. They don’t look for the underlying reasons for unprofitability. Then they quickly sell the company, at a profit, to someone who is unaware of the long-term damage they have done.
If you want to convince me that Bain did things like this, then give me something *solid*. Give me facts and figures. So far, none of Romney’s or Bain’s critics, on any venue, have done anything of the sort.
Dear Dr. Bones,
I can only assume that his freelordship is joshin’ the selfservative kiddies when he takes for granted that what Uncle Sam needs most at the moment is a thorough baincappin’
Still, ’tis a pleasant silliness in its way. Allow me, therefore, to go with the gag a little.
So, then: POTUS ‘Mittens’ Romney grabs the reins 1200 hours EST 20 January 2013 an’ then instantly starts ditchin’ losers an’ pickin’ Winners whight an’ lef … well, no, most likely even further off to starbored. It will *not*, I betcha, be easy being green, or solar, or anything leffy like that, under our new CEOUSA.with the mind of finely honed steel claptrap. Plus with an M.B.A. from the H*rv*rd Victory School, being the former Allston (Mass.) College of Chirurgy and Barber Science. [*]
Such is the basic pscenario, but I have more trouble than usual with imagining those picturesque little details that alone bring such a pscenario to neolife. For example, what will His BigManagement ditch, exactly? Ditch in a respectable baincapitalist way, I mean, rather than just turn the freelordly back on it an’ walk away. We do not want our holy Homeland™ to end up lookin’ like one of the kiddiecon parts of town, after all, with abandoned murder vehicles, whole or partial, in every other front yard. Somebooby has to be persuaded to pay at least a little something for the detritus from baincappin’, or at very least cart it away so it rusts quietly and out of sight from the road. If we can’t get that much from His BigManagement, there is really no reason not to let Don Neutrino, or even one of the two St. Ricks, have the plum job. To install Mittens on the grounds that he is a whiz at baincappin’ makes no sense (¿does it?) if he can never have a chance to strut his stuff.
I fear that pickin’ Winners will be even more of a challenge than ditchin’ losers, mostly due to that curious quirk in the reactionary mind that makes it unthuinkable for The Wicked State (which, after all, the Fedguv must continue to be, even under POTUS Mittens from the Party of Grant-Hoover-Goldwater-Atwater) to do anythin’ at all that the Secret Sector could conceivably make a buck off. His BigManagement will be able to *pick* all the Winners in the FreeWorld, I guess, but what will that avail anybooby, when His BigManagement is prohibited from actually specuvestin’ in them? Are we to suppose that Mittens XLV Romney will put notices in the _Federal Register_ (or perhaps _The Wall Street Jingo_) callin’ upon secret-sector specuvestors an’ investulators to wager their chips accordin’ to His BigManagement’s judgment rather than their own?
Or, even worse, that HBM would convey such infallible hot tips only to selected cronies an’ SuperPACsters? ¡Perish the thought!
It looks to me, then, as if David, zeroth Freelord Horwich in the peerage of Foxcuckooland, has not altogether thought this perfect brainstorm through.
We have agreed to go along with his freelordship’s gag, which means: to accept (1) that Mittens is the best of all possible baincappers, and (2) that baincappin’ is just what the holy Homeland™ needs to get out from under the Crawford Crash. Unfortunately one can grant both these premises, with or without a smirk on one’s mug, and still fail to see in them any reason to raise Mittens up to sit where Washin’ton an’ Coolidge sat. YES, His BigManagement would do it well, an’ YES, the Homeland™ badly needs it done, but NEVERTHELESS — it is simply not a thing that can decently be done out of the Oval Office.
“Sorry, Willard.”
Happy days.
___
[*] The ever-victorious Big Managers of 02134 were never properly embarraassed for havin’ bestowed their Degree to End all Degrees on a certain G. W. Bush of TX, as George XLIII then was. Still, ¡nobooby’s infallible! Once Mittens gets America well baincapped, scurrilous doubts about whether conduct of the secret-sector business corporation is *really* a learnèd profession on a par with Law or Dogmatic Mythology will be abandoned by everbody on the sane side of Captain Ludd.
_¡Que lástima!_ that there won’t be any such ‘once’. That there cannot be.
David, since you are unable to provide solid data on what Bain Capital did under Romney you vindicate neither. That said, Romney must make the case that his actions at Bain placed companies in a position to preserve and create jobs as opposed to Obama’s record. This is the issue Obama did not want used up now.
The proof is in the results. Bain has successfully raised hundreds of millions (if not billions) of dollars in successive rounds of fund-raising. Alternative investors don’t pony up that kinda dough without doing their diligence into prior results. While past performance is never an indicator of what will happen in the next fund, it is a pretty good indicator that the people raising the capital have made investors money in prior funds. It’s hard to ask for more of a guarantee than that.
my buddy’s step-aunt makes $80/hr on the computer. She has been laid off for 7 months but last month her paycheck was $7382 just working on the computer for a few hours. Read more on this site… LazyCash10.com
SPAM SPAM SPAM and more SPAM!
I went through the Bain business with a company, when our original board ran us into bankruptcy. Coming out the other side another equity company picked us up and hired a great CEO that took us through bankruptcy to a billion a year business. His major steps were to rid us of the overburdening overhead that was built into the system, which is chronic in corporate America today. He also rid us of other dead weight. Did people lose jobs? Yes, but by streamlining the business it was reborn and stronger. We became a leader in our industry.
http://youtu.be/MTx95Y5ZxEs
this says it all
Like pirates prowling the Spanish Main in search of galleons and gold doubloons, targets of opportunity, PEs seek out companies or businesses they can plunder. PEs enhance the short-term earnings of companies, starving them of capital, then transfer wealth to themselves through distributions, fees, and divdends by forcing their hosts to take on debt.
Decide for yourself.
http://napoleonlive.info/economics/mitt-romney-bain-capital-2012-election/
Nonsense. The typical buy and hold is for years, in which risks that the economy will go bad, the markets for the product will go bad, the PE will have made a bad bet on management, there will be a good window to sell the Company at the time of exit, etc. can all happen. Those types of risks call for above-market rates of return. And, BTW, once they’ve taken the risk with their capital, they can pay themselves anything they want out of cash flow.