Bain Capital had two main lines of business. It supplied venture capital for startup companies with a good idea, and its private equity line of business bought and turned around failing companies. Staples, the business supplies mega-store, and Bright Horizons, the child-care provider, are two of the startups that came from Bain Capital. Sports Authority and Domino’s Pizza were saved by Bain’s private equity business. The second half of Bain Capital’s business, turnarounds, is what has drawn fire from the left and from a few strangely anti-capitalist Republicans.
When a company comes up on the radar of a turnaround specialist such as Bain Capital it is already in trouble. The business of the company is in danger. Its costs are higher than its revenues and it is going to go bankrupt if nothing changes. Its customers are in danger of not having a supplier. Its vendors are in danger of not having a customer. Its employees are in danger of not having an employer. Unless something is done, the company will fail and everybody will be out in the cold. And that is when the turnaround specialist gets called in.
It’s obvious that Bain Capital is going to be blamed for jobs lost when companies cannot be turned around. And that is what we have with the demonization of Mitt Romney for his time at Bain. Just look at Randy Johnson, who is following Mitt Romney around on the Democrat Party’s dime.
The 57-year-old described how he worked at a factory making office supplies owned by Smith Corona, which facing bankruptcy, sold his plant to another company, Ampad, that has recently been acquired by Bain Capital. Ampad promptly fired all of the workers at the plant, and then re-hired most of them. Since they were a union shop, and over half of the employees had been re-hired, the new owners were forced to recognize the union. They tried to renegotiate the contract, but the union eventually decided to go on strike, so Ampad shuttered the once-profitable factory.
Does that sound like Bain’s fault, or the fault of a union that wouldn’t face reality and drove yet another American factory into bankruptcy? The union went on strike after the new owners had already fired a warning shot by firing and rehiring the staff. It’s no surprise that Smith-Corona, the famous typewriter manufacturer, would have problems with its business model after the typewriter had become obsolete. Bain tried to save what it could from Smith-Corona’s operations, but was faced by a union that was unable to face facts or adapt to change.
If Bain Capital hadn’t invested any money in this Smith-Corona factory, would any jobs have been saved? Manifestly, no. The jobs would have been gone sooner. Randy Johnson would have been unemployed sooner. Bain Capital lost money trying to keep Randy Johnson’s job and the union scuttled that plan. Bain Capital did not make any money from shuttering the factory. It lost money. This is the opposite of the complaint most Democrats and other socialists have about corporate management, that they loot their companies and make out like bandits. The Wall Street Journal notes:
One of the persistent gripes of the left is that too many CEOs make too much money even as their companies flounder. Private-equity firms target such companies or subsidiaries, replace their management, and try to unlock the underlying value in the enterprise.
The WSJ article mentioned above goes into more detail, and you are free to read it in its entirety. I just want to stick with a few points about Bain and the nature of the turnaround business.
Let’s say your company is big, used to be a thriving business but is facing big problems and now losing money. Costs outstrip earnings, and this cannot be sustained. Your stock price is tumbling and a turnaround specialist like Bain manages to get a controlling interest in your company. First, your management is replaced by Bain’s team. Then everything goes on the table. Bain tries to save the profitable parts of the company including the jobs, capital equipment, intellectual property, and other assets.
Remember, without Bain doing a turnaround, every single gosh-darn freaking job at the company would have disappeared. Those jobs should be counted as already gone, not as jobs lost. And if those jobs are saved… well that’s really something!
So the first thing Bain did to its turnaround clients is it saved a lot of those jobs. These were REAL saved jobs: Permanent, full-time saved jobs. Not like the Obama stimulus “saved” jobs, where they are double or triple counted and none of them are permanent.
The people who got laid off by Bain would have been laid off without Bain. But lots of people kept their jobs thanks to Bain. For instance, Sports Authority and Domino’s Pizza are still in business today thanks to Bain. Without Bain they would not exist, and nobody who works for them would have a job, at least not a job working for those companies.
Yes, sometimes Bain tried to turn companies around and couldn’t. Those companies went out of business. But they would have gone out of business earlier if Bain hadn’t invested money in them first.
So, every time you go to Sports Authority for running shoes and every time you order pizza from Domino’s, thank Bain for saving those troubled companies. They wouldn’t still be here if Bain hadn’t turned them around.