What is the benefit to society of Private Equity Romney style?

Quote from mwhite428 : Yes I do think he saved or created more jobs than were lost.

And do you have any substantiation for that particular opinion? Or is that just what you prefer to believe?

Quote from andyfico : Do you have proof that Romney's "PE practices" as they are being defined by the OP, caused the demise of KB toys or is that just your opinion?

Do I have "proof" that you would likely accept as proof? Probably not...

Just like mwhite428 offered no "proof" that Romney actually saved Staples' employees' jobs.

Quote from smegalicious : Do I have "proof" that you would likely accept as proof? Probably not... Just like mwhite428 offered no "proof" that Romney actually saved Staples' employees' jobs.

Oh come on. What a cop out. Try me. KB Toys fell behind and couldn't keep up with the big box stores. Many companies have been beaten by larger competitors even without the involvement of PE. Can you prove your theory? I couldn't care less what another poster said. My question was for you.

Quote from andyfico : Oh come on. What a cop out. Try me. KB Toys fell behind and couldn't keep up with the big box stores. Many companies have been beaten by larger competitors even without the involvement of PE. Can you prove your theory?

What "theory"?

If Romney should get credit for "saving" jobs at Staples (depsite cashing out long before their eventual success), then why shouldn't he also take the credit for "losing" jobs at KB Toys?

Or does Romney (and his supporters) get to conveniently pick & choose which results should be accedited to him & which should not?

Quote from smegalicious : What "theory"? If Romney should get credit for "saving" jobs at Staples (depsite cashing out long before their eventual success), then why shouldn't he also take the credit for "losing" jobs at KB Toys? Or does Romney (and his supporters) get to conveniently pick & choose which results should be accedited to him & which should not?

Interesting. I've tried to argue that about the President, that he should take the blame and not deflect if he is going to take the credit but I digress....

You challenged the other poster to provide proof of his/her theory that PE saved Staples. Now I am asking the same of you WRT PE killed KB Toys. If you can't do it, there is no shame in that. Your opinion will remain your opinion.

Typically the argument is that PE allows new management to come in a properly use existing capital that has been improperly used. That is, the company that is being taken over is declining to the extent that the cost of the company is less than the cost of the assets. If PE succeeds in a turnaround, all is well and good. If the PE fails, less capital is consumed in the failure than if the business was allowed to run itself into the ground.

Quote from andyfico : You challenged the other poster to provide proof of his/her theory that PE saved Staples.

No, I asked if she had proof that Romney had "saved" more jobs than he had "lost".

Quote : Now I am asking the same of you WRT PE killed KB Toys. If you can't do it, there is no shame in that. Your opinion will remain your opinion.

Except, of course, that you misrepresent what I asked for in order to conclude that they're "the same"...

In any event, here you go [rollingstone.com]:

In a typical private-equity fragging, Bain put up a mere $18 million to acquire KB Toys and got big banks to finance the remaining $302 million it needed. Less than a year and a half after the purchase, Bain decided to give itself a gift known as a "dividend recapitalization." The firm induced KB Toys to redeem $121 million in stock and take out more than $66 million in bank loans – $83 million of which went directly into the pockets of Bain's owners and investors, including Romney. "The dividend recap is like borrowing someone else's credit card to take out a cash advance, and then leaving them to pay it off," says Heather Slavkin Corzo, who monitors private equity takeovers as the senior legal policy adviser for the AFL-CIO.

Bain ended up earning a return of at least 370 percent on the deal, while KB Toys fell into bankruptcy, saddled with millions in debt. KB's former parent company, Big Lots, alleged in bankruptcy court that Bain's "unjustified" return on the dividend recap was actually "900 percent in a mere 16 months." Patnode, by contrast, was fired in December 2008, after almost four decades on the job. Like other employees, he didn't get a single day's severance.

At the time of the KB Toys deal, Romney was a Bain investor and owner, making him a mere beneficiary of the raping and pillaging, rather than its direct organizer. Moreover, KB's demise was hastened by a host of genuine market forces, including competition from video games and cellphones. But there's absolutely no way to look at what Bain did at KB and see anything but a cash grab – one that followed the business model laid out by Romney. Rather than cutting costs and tightening belts, Bain added $300 million in debt to the firm's bottom line while taking out more than $120 million in cash – an outright looting that creditors later described in a lawsuit as "breaking open the piggy bank." What's more, Bain smoothed the deal in typical fashion by giving huge bonuses to the company's top managers as the firm headed toward bankruptcy. CEO Michael Glazer got an incredible $18.4 million, while CFO Robert Feldman received $4.8 million and senior VP Thomas Alfonsi took home $3.3 million.

And what did Bain bring to the table in return for its massive, outsize payout? KB Toys had built a small empire by targeting middle-class buyers with value-priced products. It succeeded mainly because the firm's leaders had a great instinct for what they were making and selling. These were people who had been in the specialty toy business since 1922; collectively, they had millions of man-hours of knowledge about how the industry works and how toy customers behave. KB's president in the Eighties, the late Saul Rubenstein, used to carry around a giant computer printout of the company's inventory, and would fall asleep reading it on the weekends, the pages clasped to his chest. "He knew the name and number of all those toys," his widow, Shirley, says proudly. "He loved toys."

Bain's experience in the toy industry, by contrast, was precisely bupkus. They didn't know a damn thing about the business they had taken over – and they never cared to learn. The firm's entire contribution was $18 million in cash and a huge mound of borrowed money that gave it the power to pull the levers. "The people who came in after – they were never toy people," says Shirley Rubenstein. To make matters worse, former employees say, Bain deluged them with requests for paperwork and reports, forcing them to worry more about the whims of their new bosses than the demands of their customers. "We took our eye off the ball," Patnode says. "And if you take your eye off the ball, you strike out."

In the end, Bain never bothered to come up with a plan for how KB Toys could meet the 21st-century challenges of video games and cellphone gadgets that were the company's ostensible downfall. And that's where Romney's self-touted reputation as a turnaround specialist is a myth. In the Bain model, the actual turnaround isn't necessary. It's just a cover story. It's nice for the private equity firm if it happens, because it makes the acquired company more attractive for resale or an IPO. But it's mostly irrelevant to the success of the takeover model, where huge cash returns are extracted whether the captured firm thrives or not.

Quote from Xygonn : Typically the argument is that PE allows new management to come in a properly use existing capital that has been improperly used. That is, the company that is being taken over is declining to the extent that the cost of the company is less than the cost of the assets. If PE succeeds in a turnaround, all is well and good. If the PE fails, less capital is consumed in the failure than if the business was allowed to run itself into the ground.

So how does that model extend to Bain practices of taking huge "profits" without actually succeeding with the turnaround?

Essentially running the company into the ground.

I wouldn't have a problem with them profitting from success, but it seems it was "heads they win, tails everyone else loses."

Quote from 124nic8 : So how does that model extend to Bain practices of taking huge "profits" without actually succeeding with the turnaround? Essentially running the company into the ground. I wouldn't have a problem with them profitting from success, but it seems it was "heads they win, tails everyone else loses."

Isn't that how it works? They come in and take a struggling business, try to turn it around. If the do (staples, Romney and the olympics ect) great, If they can't, they still get paid. The company was "run into the ground" well before they arrived.

Quote from smegalicious : No, I asked if she had proof that Romney had "saved" more jobs than he had "lost". Except, of course, that you misrepresent what I asked for in order to conclude that they're "the same"... In any event, here you go [rollingstone.com]: In a typical private-equity fragging, Bain put up a mere $18 million to acquire KB Toys and got big banks to finance the remaining $302 million it needed. Less than a year and a half after the purchase, Bain decided to give itself a gift known as a "dividend recapitalization." The firm induced KB Toys to redeem $121 million in stock and take out more than $66 million in bank loans – $83 million of which went directly into the pockets of Bain's owners and investors, including Romney. "The dividend recap is like borrowing someone else's credit card to take out a cash advance, and then leaving them to pay it off," says Heather Slavkin Corzo, who monitors private equity takeovers as the senior legal policy adviser for the AFL-CIO. Bain ended up earning a return of at least 370 percent on the deal, while KB Toys fell into bankruptcy, saddled with millions in debt. KB's former parent company, Big Lots, alleged in bankruptcy court that Bain's "unjustified" return on the dividend recap was actually "900 percent in a mere 16 months." Patnode, by contrast, was fired in December 2008, after almost four decades on the job. Like other employees, he didn't get a single day's severance. At the time of the KB Toys deal, Romney was a Bain investor and owner, making him a mere beneficiary of the raping and pillaging, rather than its direct organizer. Moreover, KB's demise was hastened by a host of genuine market forces, including competition from video games and cellphones. But there's absolutely no way to look at what Bain did at KB and see anything but a cash grab – one that followed the business model laid out by Romney. Rather than cutting costs and tightening belts, Bain added $300 million in debt to the firm's bottom line while taking out more than $120 million in cash – an outright looting that creditors later described in a lawsuit as "breaking open the piggy bank." What's more, Bain smoothed the deal in typical fashion by giving huge bonuses to the company's top managers as the firm headed toward bankruptcy. CEO Michael Glazer got an incredible $18.4 million, while CFO Robert Feldman received $4.8 million and senior VP Thomas Alfonsi took home $3.3 million. And what did Bain bring to the table in return for its massive, outsize payout? KB Toys had built a small empire by targeting middle-class buyers with value-priced products. It succeeded mainly because the firm's leaders had a great instinct for what they were making and selling. These were people who had been in the specialty toy business since 1922; collectively, they had millions of man-hours of knowledge about how the industry works and how toy customers behave. KB's president in the Eighties, the late Saul Rubenstein, used to carry around a giant computer printout of the company's inventory, and would fall asleep reading it on the weekends, the pages clasped to his chest. "He knew the name and number of all those toys," his widow, Shirley, says proudly. "He loved toys." Bain's experience in the toy industry, by contrast, was precisely bupkus. They didn't know a damn thing about the business they had taken over – and they never cared to learn. The firm's entire contribution was $18 million in cash and a huge mound of borrowed money that gave it the power to pull the levers. "The people who came in after – they were never toy people," says Shirley Rubenstein. To make matters worse, former employees say, Bain deluged them with requests for paperwork and reports, forcing them to worry more about the whims of their new bosses than the demands of their customers. "We took our eye off the ball," Patnode says. "And if you take your eye off the ball, you strike out." In the end, Bain never bothered to come up with a plan for how KB Toys could meet the 21st-century challenges of video games and cellphone gadgets that were the company's ostensible downfall. And that's where Romney's self-touted reputation as a turnaround specialist is a myth. In the Bain model, the actual turnaround isn't necessary. It's just a cover story. It's nice for the private equity firm if it happens, because it makes the acquired company more attractive for resale or an IPO. But it's mostly irrelevant to the success of the takeover model, where huge cash returns are extracted whether the captured firm thrives or not.

Thank you. Per your own Rolling Stone link however, it says that genuine market forces hastened the demise of KB Toys. In fact, if KB Toys were indeed doing well in the first place, they wouldn't have had to need any outside help. The article also claims that Bain did not have enough knowledge to plot a course for KB to be able to compete with the big box stores. I don't think this is because of Romney's PE style (as defined by the OP). As someone who has been a part of but opposed mergers and buyouts that were not right for either company, I can say that non PE companies often feel that they have more knowledge and expertise than they actually have. Bad acquisitions are not made only by PE firms. If "Romney's PE style" saved all those jobs at Staples, then that would be a benefit to society. I don't know however that you can make that determination with the narrow definition that the OP has attributed to Romney's "Style". If you adhere to the OP's narrow and erroneous definition, i can only see negative outcomes.

Quote from sanfran22 : Isn't that how it works? They come in and take a struggling business, try to turn it around. If the do (staples, Romney and the olympics ect) great, If they can't, they still get paid. The company was "run into the ground" well before they arrived.

Exactly right. They make an investment and are entitled to seek a return on their money.

Quote from sanfran22 : Isn't that how it works? They come in and take a struggling business, try to turn it around. If the do (staples, Romney and the olympics ect) great, If they can't, they still get paid. The company was "run into the ground" well before they arrived.

Are you talking about Staples?

Cause that was a startup, not a turnaround effort. [wikipedia.org]

Quote : One of Bain's earliest and most notable venture investments was in Staples, Inc., the office supply retailer. In 1986, Bain provided $4.5 million to two supermarket executives, Leo Kahn and Thomas G. Stemberg, to open an office supply supermarket in Brighton, Massachusetts.[

And I don't see anything there about Bain's later practice of taking large payouts, since they divested Staples before the big expansion.

Quote from andyfico : Thank you. Per your own Rolling Stone link however, it says that genuine market forces hastened the demise of KB Toys. In fact, if KB Toys were indeed doing well in the first place, they wouldn't have had to need any outside help. The article also claims that Bain did not have enough knowledge to plot a course for KB to be able to compete with the big box stores. I don't think this is because of Romney's PE style (as defined by the OP). As someone who has been a part of but opposed mergers and buyouts that were not right for either company, I can say that non PE companies often feel that they have more knowledge and expertise than they actually have. Bad acquisitions are not made only by PE firms. If "Romney's PE style" saved all those jobs at Staples, then that would be a benefit to society. I don't know however that you can make that determination with the narrow definition that the OP has attributed to Romney's "Style". If you adhere to the OP's narrow and erroneous definition, i can only see negative outcomes.

What "help" did Bain actually provide? When did Bain even *attempt* to provide such help?

Again, if Romney deserves credit for "saving" jobs, then he also deserves blame for "losing" jobs. Unless, of course, you would like to engage in the same hypocrisy that you accuse Obama...

Quote from andyfico : If you adhere to the OP's narrow and erroneous definition, i can only see negative outcomes.

So how many of Rmoney's Bain investments did and did not "adhere to the OP's narrow and erroneous definition"?

Cause it appears Bain may have started out as a venture capital company and morphed into hostile takeovers.