Romney’s Bain Capital record shows mixed record on bankruptcies

Correction: An earlier version of this article gave the incorrect dates for Mitt Romney’s tenure at Bain Capital. This version has been updated.

December 14, 2011

With Newt Gingrich accusing Mitt Romney this week of “bankrupting companies” during his time at Bain Capital, Romney’s wildly lucrative business career continues to draw fire from opponents who seek to paint him as a heartless financier.

So did Romney wreck companies as Gingrich says he did?

Under Romney’s leadership at Bain, which spanned from 1984 to 1990 and from 1992 to 1999, at least five companies eventually filed for bankruptcy after being acquired by the private equity firm. In some of those cases, investors still made a profit as workers lost their jobs.

Even more troubling to some, Bain arguably drove some companies to the ground by taking on more debt to give investors dividends earlier.

“These were not businesses close to collapse,” said Josh Kosman, author of “The Buyout of America.” “They borrowed all this money against the company and then borrowed money again to take a dividend because the company was stable.”

This week, Romney’s campaign fired back at Gingrich, calling attention to the former House speaker’s work consulting for troubled mortgage giant Freddie Mac.

“Newt Gingrich comes from the world where politicians are paid millions after they retire to influence their friends in Washington,” Staples founder Tom Stemberg said in a statement distributed by the Romney campaign. “Mitt Romney comes from the private sector, where the economy is built by hard work and entrepreneurial drive.”

The business of private equity depends on debt for its profitability. A company like Bain Capital raises money from big investors, such as pension funds or university endowments, to form a fund. The firm then goes looking for companies to acquire, using money from the fund, plus much more borrowed from lenders.

The private equity firm holds on to the company until it can be sold for a profit, perhaps paying out shareholder dividends in the meantime. No matter what, the firm collects fees from investors. It’s not unusual for companies to go bankrupt after being acquired by private equity firms. But that track record has also made the industry controversial because the financiers can make money on fees and dividends even if the businesses they buy go bust.

Evaluating Romney’s time at Bain depends on how you define success. He consistently delivered for investors, producing as much as 173 percent in annualized returns, according to a prospectus obtained by the Los Angeles Times. But the businesses under his firm’s care did not always fare as well — and their names are less well-known than the ones the Romney campaign prefers to tout, such as Domino’s Pizza, Sports Authority and Staples.

In 1992, Bain bought American Pad & Paper for $5 million. The company turned a profit of $100 million for investors but later filed for bankruptcy in 2000. Layoffs at the company dogged Romney during his 1994 Senate race against Sen. Edward M. Kennedy (D-Mass.), who ran political ads showing Ampad factory workers who had lost their jobs as Bain cut costs. The Romney campaign argued that those job cuts came when he was on leave from the firm.

A year after the Ampad deal, Bain acquired steel firm GS Industries. In 2001, the company filed for bankruptcy.

In yet another bad outcome, Bain bought the electronics company DDi, based in Anaheim, Calif., in 1997. Six years later, it declared bankruptcy. Another example: Stage Stores, which Bain bought in 1988 and later filed for bankruptcy in 2000.

In the case of medical diagnostics firm Dade Behring, more than 1,000 jobs were cut as Bain and other investors tried to make the company more profitable through acquisitions and consolidation.

Investors tried to extract money from the firm. In June 1999, Bain and its co-investor, Goldman Sachs, sold back shares worth $365.4 million to Dade, but to do this, the private equity firms had to borrow more money.

The amount of debt they took on would become fatal. When interest rates rose, Dade’s borrowing costs shot up as well. In 2002, the company could not keep up with its payments and filed for bankruptcy.

Scott Barrett, who was chief executive of Dade Behring from 1994 to 1997, said that by the time of the share payout, Romney had already left Bain Capital. The company was ultimately acquired by Siemens.

Jia Lynn Yang is a staff writer at The Washington Post who covers policy and business. Before joining the Post, she worked at Fortune magazine.
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