Flaherty: “Layoffs are a common result of private equity takeovers, with [Romney’s] Bain Capital no exception”

January 24, 2008 in 2008, analysis, argument, conservatism, election 2008, GOP, mitt romney, republicans, rhetoric, romney, strategy, the dark soul of Mitt Romney, triumph of unreason
Tags: economy, equity-sector, financial services, jobs, lies, michael flaherty, reuters.com

“NEW YORK (Reuters) – Recalling his days as a businessman, Republican U.S. presidential contender Mitt Romney often cites the 25 years he spent in the private sector creating jobs,” which apparently isn’t true, writes Michael Flaherty of reuters.com in an analytical discursus titled Private equity past may cloud Romney’s jobs pitch

But as the leader of private equity firm Bain Capital from 1984 to 1999, Romney’s record shows that while some of the firm’s investments helped companies grow, others ended in thousands of layoffs, and in some cases, bankruptcy.

Layoffs are a common result of private equity takeovers, with Bain Capital no exception. Although Romney is credited with helping make Bain the private equity powerhouse it is today, buyout firms are known more for cutting jobs — not creating them.

“I believe most Americans want their next president to remind them of the guy who they work with, not the guy who laid them off,” Republican rival Mike Huckabee said in a campaign ad and in many campaign speeches.

Companies such as office supplier Staples Inc. and pizza company Domino’s were successful Bain investments under Romney.

But medical test maker Dade Behring, circuit board maker DDi, American Pad & Paper and auto parts company Cambridge Industries are among the companies that went bankrupt after Bain invested in them with Romney at the helm.

“The bottom line of a private equity buyout is not to create jobs. The point is to make money,” said Marisa DiNatale, senior economist at Moody’s Economy.com. “In many cases, the point is to pare down the company and make it run as efficiently and as profitably as possible. Oftentimes that includes cutting jobs.”

Private equity firms buy companies by borrowing most of the money, and sell them later, keeping about 20 percent of the profit on the sale and giving the rest back to their institutional investors.

Romney worked as a consultant at Boston-based Bain & Co before he was tapped to run Bain Capital. The firm started out with more of a venture capital strategy and later moved more toward traditional leveraged buyouts.

The private equity model is built on loading companies up with debt — which can ultimately prove too heavy a load for the business, as was the case with DDi […]

Precisely. This is not jobs creation or even wealth creation. Private equity is about gaming the system; it is about optimizing, eking out hairline efficiency gains, discovering opportunities for consolidation or liquidation etc. We harp on these strings often around here:

Romney in FL wants credit for being a major player in the financial services sector—at the very moment that that sector is crashing and taking the US economy down with it

This is what interested us the most in Flaherty’s analysis:

[…] Romney knows a lot about the economy, says a former Bain Capital employee who worked under him. But on the topic of jobs, he says Romney was never one to put expanding a company’s payroll ahead of keeping costs low.

“It’s fair for him to claim that he spent 20 years of his life in the private economy. And therefore he understands what makes businesses succeed and fail,” said the former Bain employee, who did not want to be identified. “But that’s different from saying he was in a position to oversee job creation as a whole. Bill Gates grew a business from scratch. That’s not what you do in private equity. You’re an investor” […]

A former Bain employee willing to speak frankly?

yours &c.
dr. g.d.

Advertisement