Mitt and Bain

There’s been a fair amount of ink and electrons expended in regards to the topic of Mitt Romney and Bain Capital. Most of it has been of the nature of a sporting activity, either “boo, vulture capitalist” or “yaay, job creator.” Although this vague attempt to envision the consequences of a candidate’s principles is theoretically a slight improvement on the “Horse Race Journalism” I railed against in a previous post, it continues the chattering class’s insistence on confusing labeling with rational analysis. Hence my surprise today to encounter a reference in a NY Times editorial today to an article actually looking deeper into the fortunes of 77 companies acquired by Bain Capital during Romney’s tenure. The article appeared in the Wall Street Journal 1/9/12.

Now, overall, Bain produced about $2.5 billion for its investors on about $1.1 billion invested. Ok, 250% is not a bad return compared with, say, the fraction of 1% I’m getting on my bank savings account now, but hey, I guess Mitt’s just a really good manager. But take a look at the specific gains. Not too surprisingly, 10 of the 77 deals produced over 70% of the gains (see figure). How gainful were these gains? Well, you can see that Bain invested $5.1 million in American Pad & Paper in ’92, took them public in ’96, and pocketed $102 million—a 20 fold return (2000%). Oh, and Bain made AP&P so profitable and successful that AP&P went bankrupt  4 years later, in 2000. Even better was Wesley Jessen VisionCare, which turned a $6.4 million investment in ’95 into a $302 million (47x) profit after going public in ’95.

Wall Street Journal, 1/9/2012

Wiley business strategies? Absolutely. I wish I made 250%, or 2000% or 4700% on my money—then I’d be rich and you all would have to listen to me (or at least run me for president). But is this investment success evidence that Mitt knows how to manage businesses out of a jam, solve the problems that are keeping them from being profitable? That’s the narrative the Republicans want, because that shows he’s the man to fix America’s problems, too. Well, let’s think about it. Take American Pad & Paper. How do you fix and manage your way to 2000% profit? Even if Mitt went in and found that Tom on the 3rd shift had mistaken the office supplies coming off the production line for scrap paper and was throwing them all out, you couldn’t make an extra $100 million. Not even if Mitt personally invented a new, cheaper glue for Post-it notes. Now I’m sure that many management improvements were made, but that is how you go to 20% profit, not 2000%—and fixing management problems doesn’t put you in bankruptcy a few years later. Without further digging into these private deals than even the WSJ did or could do, we can’t say for sure what happened (gee, how about that) but there doesn’t seem to be any way to avoid the conclusion that Mitt’s success was all due to leveraged buyouts and sucking money out of IPOs rather than any particular ability to run a business (other than a vulture capital business, which is what he should stick with). There is zero carry-over to managing the USA.

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