Newt Gingrich and others are making a lot of noise about Mitt Romney’s time as managing partner at Bain Capital, a private equity firm. This is disappointing coming from Mr Gingrich because he knows better. It’s the first time that I know he is being disingenuous with the voters, and it damages his earlier effort at speaking truth to those who would listen. I question his decision to go negative in the first place, but the way he has chosen to do so all but eliminates him for my consideration as being deserving of the office he seeks.
The charge is that Mr Romney presided over a company that, by and large, bought control of companies to drain them of worth, fire everybody and sell the remaining assets, generating an overall profit for the effort. He then points out a couple of companies that seem to match that description.
That is nothing short of cheap demagoguery.
Bain Capital, as a private equity company, specializes in turn-a-rounds – buying troubled companies, jettisoning the unproductive aspects, and reorganizing the working parts into a profitable company which it then seeks to sell to owners interested in operating the company from there. Most of the time they succeed, and the reorganized company goes on to grow and hire and produce wealth. Some do not, and they end up in bankruptcy (which is where they were headed before Bain – or any private equity firm – came in to try and save it).
The critics never mention Domino’s Pizza and Staples, Bain Capital’s two largest successes that, between them, have created a couple of hundred thousand jobs and created billions of dollars of new wealth. Yes, 22% of Bain’s acquisitions have failed. That means, of course, that 78% of them have not, and that is typical of the private equity industry, whose economic function is to save companies that are faltering for whatever reason. It’s a different undertaking than venture capitalism – which provides seed money for new startup companies – and “corporate raiders” – whose activities resemble those described by critics of Mr Romney’s tenure at Bain Capital.
Arthur Rock is a quintessential venture capitalist. He invested $100,000 in a startup (Intel) in exchange for “eight points” – 8% of the nascent company. One would probably need one of their microprocessors to figure what eight percent of ground-floor Intel is worth today, but that is the idea behind venture capitalism: to absorb the risk of a good idea propagated by good people and enjoy the reward if it succeeds. Carl Icahn is a primary example of a “corporate raider.” He takes over companies to “flip” them – to extract the maximum amount of money from a failing venture, normally by “piecing it out.” They are noticeable by their proclivity for hostile takeovers, where they take control of a company against the wishes of the current owners – a practice not exhibited by private equity firms.
I would expect these anti-business arguments from Democrats – especially the anti-business Democrats now in power – but not from Republicans – especially those claiming to be conservatives. Disappointing.
Mr Rock also underwrote $2.5 million in convertible debentures, an arcane financial instrument which he used in an unconventional way – forgiving them as they were “paid back” in lieu of the 8% ownership stake.
Posted
01-16-2012 9:26
by
Eagle Watch