Reporting from Washington—
Shortly after Mitt Romney resigned from Bain Capital in 1999 to run the Olympics in Salt Lake City, potential investors received a prospectus touting the extraordinary profits earned by the private equity firm that Romney controlled for 15 years.
Now a front-runner for the Republican presidential nomination, Romney says his Bain experience shows he knows how to create jobs. He often cites Bain's investment in a little-known office supply store called Staples, which now employs more than 90,000 worldwide.
DOCUMENT: Read the Bain Capital prospectus
But a closer examination of the prospectus paints a different picture of Bain's operation. Under Romney's leadership, Bain became one of the nation's top leveraged-buyout firms, helping lead a trend in which companies were acquired using debt often pledged against their own assets or earnings.
Bain expanded many of the companies it acquired. But like other leveraged-buyout firms, Romney and his team also maximized returns by firing workers, seeking government subsidies, and flipping companies quickly for large profits. Sometimes Bain investors gained even when companies slid into bankruptcy.
Romney himself became wealthy at Bain. He is now worth between $190 million and $250 million, much of it derived from his time running the investment firm, his campaign staffers have said.
Bain managers said their mission was clear. "I never thought of what I do for a living as job creation," said Marc B. Walpow, a former managing partner at Bain who worked closely with Romney for nine years before forming his own firm. "The primary goal of private equity is to create wealth for your investors."
Bain's top 10 dollar investments under Romney — averaging $53 million — spanned a number of sectors, including healthcare, entertainment and manufacturing. The firm's largest investment was its 1999 buyout of Domino's Pizza, into which Bain put $188.8 million, eventually reaping a fivefold return.
Four of the 10 companies Bain acquired declared bankruptcy within a few years, shedding thousands of jobs. The prospectus shows that Bain investors profited in eight of the 10 deals, including three of the four that ended in bankruptcy.
Romney launched Bain Capital in 1984 after seven years at Bain and Co., a highly regarded consulting firm that he joined two years after finishing Harvard Business School. The firm's founder, Bill Bain, tapped Romney to establish Bain Capital as a separate company that would draw from Bain & Co.'s consulting acumen to buy promising companies and invest in new ones.
According to the prospectus, prepared in late 2000 by a division of Deutsche Bank Securities, investors could participate in Bain's funds with a minimum investment of $1 million. Bain Capital's portfolio started with a preponderance of simple investments like Staples, but shifted heavily toward more complex leveraged buyouts and other deals within several years, according to former Bain partners.
Leveraged buyouts allow investors to purchase businesses with the acquisition funded sometimes by significant amounts of debt. To critics, these leveraged deals can make acquired companies more vulnerable to economic downturns, leading to a greater likelihood of bankruptcy and job cuts. At the same time, the deals sometimes introduce discipline to firms and even whole industries that need it.
Either way, Bain investors typically profited.
That was true in the case of GS Industries, the 10th-biggest Bain investment in the Romney years. Bain formed GSI in the early 1990s by spending $24 million to acquire and merge steel companies with plants in Missouri, South Carolina and other states.
Company managers cut jobs and benefits almost immediately. Meanwhile, Bain and other investors received management fees from GSI and a $65-million dividend in the first years after the acquisition, according to interviews with company employees.
In 1999, as economic challenges mounted, GSI sought a federal loan guarantee intended to help steel companies compete internationally. The loan deal was approved, but in 2001, before it could be used, the company went bankrupt, two years after Romney left Bain.
More than 700 workers were fired, losing not only their jobs but health insurance, severance and a chunk of their pension benefits. GSI retirees also lost their health insurance and other benefits. Bain partners received about $50 million on their initial investment, a 100% gain.