Bain Blame Game
The race to November is on, and President Obama is launching a new ad campaign, trying to score votes by blasting Mitt Romney and his tenure as the head of Bain Capital, a private equity firm.
“Bain capital was the majority owner. They were responsible. Mitt Romney was deeply involved in the influence that he exercised over these companies. They made as much money off it as they could, and they closed it down, they filed for bankruptcy without any concern for the families in the communities. Like a vampire. Came in and sucked the life out of us. It was like watching an old friend bleed to death.”
Calling this ad an attack is, if anything, an understatement. Even prominent Democrats are coming out against it for being over the top.
But it does raise some interesting questions.
Is Bain or private equity investing in general morally bankrupt? Is Romney a corporate raider more ruthless than Wall Street?
To answer that, you first have to understand what private equity is -- which the critics clearly don't.
Private-equity firms look for companies that have lost value. They buy those companies, and then invest more in them. That means everything from new strategy to new equipment to new paint on the walls. That investment costs more money, and usually that leads to borrowing, but that's funding the company could never have gotten on its own.
Consider Axle Tech - a manufacturer in Michigan that supplies our soldiers in Afghanistan. The Carlyle Group took over the company in 2005. With their backing, Axle Tech was able to double both production and employment.
Likewise the "victims" of Bain were out of favor and performing poorly. Which is to say, if Bain hadn't come along these companies might have closed their doors and shut down entirely. Not a recipe for job gains.
What about the charge Bain was a hit and run investor - in it for a quick buck?
Not if you look at the facts. The Wall Street Journal analyzed 77 of the companies Bain invested in - their relationship lasted as long as eight years.
That ain't short term to me.
Look, the real critics of private equity seem to believe these failing companies would have been better off struggling along on their own.
But doesn't it make more sense to turn a business around, rather than watching them hang on by their fingernails and hoping things get better? That's really what the critics are talking about. Wishing, hoping, and waiting.
Now the charge private equity firms fire people is true. Often the first out the door though is senior management. And if the company is dying, everyone's losing their job anyway. But if the firm is successful, more people are hired.
Even the federal government knew they had to slim down the automakers when they bailed them out three years ago, pressuring them to trim their bloated dealership networks. Slashing thousands of jobs.
It is fair to look at how well Bain performed - 22 percent of its investments went belly up.
But the firm also launched Staples, Dominos Pizza and Sports Authority.
Today those companies employ a total of nearly 116,000 people. And Bain investors tripled their money.
Other companies that have benefitted from private equity investors include a couple you might have heard of: GNC, Burger King, and HCA.
So was Bain greedy? Maybe.
Ruthless -- well -- in their quest for profits, yes.
But many people benefitted from their efforts. In other words, companies like Bain do more good than harm.
Not to mention: It's tough for the President to be too hard on so-called "vulture capitalists." after all, he took three and a half million dollars from private equity executives in the last election. And you can bet he'd like even more this time around.