Well, if he says he’s an expert, then he must be one! After all, it’s on the internet!
Well he’s certainly an expert on getting himself called an expert by media outlets.
This article fromVanity Fairhas some information on the Bain strategy (starting on page 4). Once again it clearly shows that cutting jobs was an important part of that strategy.
A great article on Romney and Bain: Greed and Debt: The True Story of Mitt Romney and Bain Capital, by Matt Taibbi. A choice excerpt:
Emphasis added.
It is impossible to say because there is no counterfactual. If a firm has 10,000 workers and Bain buys it and fires 5 thousand workers, there is no way to know if they destroyed 5,000 jobs by firing the workers unnescessarily or saved 5,000 jobs by turning a failed company into a viable company.
However we can surmise from the fact that Bain made alot of money buying and selling companies that some of the companies they sold were healthier and growing more when they sold them. Since growing companies hire many more employees than floundering companies it is quite likely that Bain capital create more jobs than they destroyed.
Lost in all this is the notion of productivity. The purpose of a widget company is not to employ workers but to provide the economy with widgets. If the same number of widgets can be produced with fewer workers that is good for the economy as a whole, since those workers are freed to produce other things.
First place economists can be wrong. Secondly some serious economists insist that if Romney actually went through with some of the things he has proposed (cutting non-military spending to the bone, privatizing social security and turning medicare into a voucher system) then those 12 million jobs will probably not appear. Who is right? Who knows?
The argument for the job creation is this. People have been paying down their debts instead of buying goods and that is what has caused the recession. But now their old cars, old washing machines, old refrigerators, are wearing out and must be replaced. So they will start spending again. Maybe they will if they see good times ahead. A bit of a positive feedback loop, that.
It’s obvious and factually correct that they destroyed 5000 jobs. It’s simply speculation that they saved any.
There is no basis for this. There is no indication that the companies were healthier, simply that they were sold for more than they were purchased for. Growing companies do not have to hire any new employees if their ‘growth’ is based on eliminating competition and cutting costs by firing employees. And many companies have reduced their domestic employment and grown by creating more jobs overseas.
Unemployed workers produce nothing.
Good god that article is just comically bad. You don’t buy an ownership interest in a company from the management team of a company; you buy an ownership interest from the current owner. Management are employees working on behalf of the owners. This is so plainly obvious I don’t even understand how a person could confuse it. Could I go an buy your house from your housekeeper?
But let’s continue, this supposed example company they use has little debt now and a solid cash flow stream. They call it floundering, but what in the hell is floundering about a company with good cash flow and little debt. I think floundering might be the strangest adjective I could possibly think of to use in that situation. Regardless, the owners are presumably selling their interest to this PE firm in a non-distressed type situation since they have little debt and generate good cash flow, correct? Well, if the PE firm can debt finance nearly the entire purchase price like the article says then doesn’t it obviously stand to reason that the existing owner has sold for far too low a cost? Do you not see the conflict here? Why would a non-distressed seller be selling for far below market value?
The article’s logic gets even worse though. They say the company is on the hook for the debt, and that’s of course true if the company is the named borrower and no one else has guaranteed the debt, but the PE firm is on the hook for the equity interest position they took? Why put 10% to 40% (the range they quote as usual even though they later have Bain magically debt financing 95% of the their acquisitions) of the purchase price down to buy a company with some evil idea to destroy the value of the company? You would lose all of the money you just put in. Oh, they have an answer for that: the PE firm somehow magically makes this money back in dividends and management fees. Of course, debt agreements from banks place pretty hefty restrictions on dividends (especially so if the debt position is high as it would be in this instance), so the simple fact that they borrowed so much to help finance the acquisition means they are also limited on taking capital out of the company. And unless you think they can take out 10% to 40% of the company’s market value in management fees in a short period of time, then you would have to own the company for a long period of time before you could ever hope to recoup you equity investment from management fees. The alternative begs the question of why the original owner would have ever sold the company in the first place if the company generates so much free cash flow annually that the new PE firm owner can take out his entire equity investment plus enough profit to make the entire scheme worth it in the first place all the while staying in compliance with the terms and covenants of the debt agreement. This original owner has got to be the stupidest moron on the planet.
Furthermore, why would banks continually be loaning money to companies owned by this PE firm if they all fail because the PE firms takes out all the cash flow and the company can’t service its debt? This isn’t the situation like in home mortgages where the debt is securitized and sold off to someone else. Corporate loans are held on the books of the bank that made the loan. There is not a very big secondary market for the loans, and they also have pretty low default rates.
Finally, this article is so dumb it doesn’t even know that Goldman Sachs is an investment bank and not a commercial bank. You would never go to Goldman Sachs to take out a loan. They aren’t in the lending business.
No, it would depend on the methodology of a study, and how “lost” is defined. If the choice without Bain is to lay off 10,000 workers (complete closure of the business), and the choice with Bain is to lay off only 5,000 workers, then you can argue that 5,000 jobs were “saved.”
I’m not a big fan of the jobs “saved” line of thinking, but Obama is. (And I don’t mean this just as a critique of Obama. Politicians on all sides use it.) Obama’s entire stimulus package was justified under jobs “saved” and the auto-maker bailout “saved” 1 million jobs, even while it closed dealerships and put some people out of work. If we wanted to apply your “obvious and factually correct” standard to Obama, we would have to include that both the stimulus and the auto bailout “destroyed” jobs.
Echoing others, I don’t believe the OP’s question can be answered. Most of the data is private or lost to time or relies on forecasting a shadow portfolio of how the companies would have done without Bain. What little is known is open to interpretation which will almost certainly be influenced by the observer’s pre-existing biases. (e.g. cut 5,000 workers vs a company that was going broke anyway in a few months, or whether to include all of Bain’s deals vs. cherry-picking only those Bain companies that subsequently went under, etc., etc., etc.). But by all means, don’t let scientific objectivity get in the way.
A company is worth more healthier than it is when it is unheathly, therefore the fact that is was sold for more than it was purchased for is prima facia evidence that it was healthier. The other possibilities are that whoever sold the business in the first place undervalued the business, whoever purchased it overvalued it, or the business got more valuable through something unrelated to management. People who buy and sell businesses are smart, sophistacated people with huge amounts of money to lose, so I would discount the first two possibilities, and relying on luck to make businesses more valuable is not a repeatable skill. Therefore the simplest explanation is that whoever took over the company made it healthier, thereby making the jobs of the people who worked their more secure.
None of those things mean anything, just as the term ‘healthy’ means nothing. A company can be more profitable with reduced production if it has been spending money on other things like future development, or just wasting the money. It has nothing to with jobs or growth. A company can also show growth through the elimination of competition through consolidation. The one company has grown, but the entire industry might employ fewer people in total. The company may also appear ‘healthy’ in someone’s eyes at the time of sale, and go completely out of business a short time later. Bain takeovers were not done to increase growth. They were done to extract the maximum profits from the companies, and often to sell the company for more than they paid. There’s no reason to conclude that job growth was an automatic result of that.
It seems Bain is just one in the school of Pihrana from the Age of Greed.
Following the massive growth of the 50’s and 60’s, the big corporations of America were bloated complacent overstaffed bureaucracies. Along came the takeover artists of the 80’s. Read Barbarians at the Gate. By cutting executive perks, fleets of executive jets, golf “meetings” and other client schmoozing, there was a lot of waste to be recouped.
Then the takeover artists got leaner and meaner, applying management science to companies; those who wanted to avoid being fatted calfs applied the same leanness to themselves… like the Bell splinters, IBM, GE, etc. Whole swatchs of middle management disappeared. People were fired or “laid off” and rehired as “contractors” at half the pay. marginally profitable divisions were closed to improve the bottom line returns.
The description above about turning a company with passable cash flow into a debt-burdened company, is basically taking money from the suckers who buy bonds (and junk bonds especially) and transferring that money to existing shareholders, new owners, the paid-off management, and leaving it up to the workers and market conditions to pay that money back.
So Bain was doing nothing novel or different - they were doing what many others were doing, no worse no better. They saw the corporate plate glass windows smashed, and people coming and going with goodies, and decided to help themselves to a free TV too. Whether they are really to blame for all the job losses (far be it from me to defend Bain principals) it would have happened anyway thanks to Bain or somebody, it was the times we were in.
I don’t have time to look at the rest of your claims, but Goldman Sachs is in fact involved in financing leveraged buyouts (which is what the Taibbi article covers). In fact, Goldman Sachs Capital Partners partnered with Bain Capital on many of its buyouts, including Burger King and Sungard.
This is just getting silly, say I agree to buy a company for 100 million dollars from Bob, borrow 90 million and pay 10 myself. I then assign the debt to the company. How much can I sell the company to Stan for now? The answer is 10 million dollars. The only way for me to make money is for me sell it for more than that. A company’s worth is its assets and its future earnings. Healthier in this context means having a higher likeliehood of increased future earnings. Companies that increase their earnings are more likely to hire than companies that do not.
Has Romney ever claimed that during his tenure at Bain, that he was a net creator of jobs? Isn’t that what the OP is attempting to fact check?
In my career I’ve hired people and I’ve fired people. Just because I may have fired more people than I hired, doesn’t make the statement that I’ve created jobs for people a false statement.
His basic narrative for his qualification for the job of President is his business experience. He has said repeatedly that he knows how to create jobs because of his time at Bain. Whether Bain had a net positive employment record really is beside the point, though, because making jobs was irrelevant to its business purpose.
One of the issues is that under GAAP assets wer recorded at purchase price, not re-assessed periodically. This is what made Greyhound and A&P good targets, I read - they had properties purchased early in the previous century, which now were extremely valuabled downtown properties. SImilarly, companies may be moderately profitable but have a lot of slack; the managers of the 60’s and 70’s ahd secretaries who typed and mailed letters and memos for them. The managers by the late 90’s lost their secretaries and were expected to typ themselves, on a computer, and email memos. You could fire hundreds and thousands of middle level managers by amalgamating departments. We lost our mailroom guy, and the receptionist sorted mail from time to time, until we lost the receptionist to a phone in the lobby and a locked door. the demands about the amount of work to be done per person went up. There was less coverage for vacations etc. Summer jobs for students disappeared as the average workplace age increased as growth stalled, so the boss-level people were too old to have college-age kids, and there was no reason to hire college students when the only people who appreciated it were the bottom-level employees. The 25-year club went from a gala dinner and dance for anyone who had at least 25 years to only “25 this year” to a cheaper locale to a luncheon. Travel went from business class to “plan ahead and buy the super-cheap tickets”. .
The downside of this, was that institutions that added value in the long term were cut. More theorretical research disappeared. Bell Labs was supported by the excessive profits of a bloated monopoly, but it gave us everything from UNIX and the transistor to C language, and proof of the Big Bang. Now it’s a shadow of its former self.
Was this inevitable? Probably. Industries like steel or autos lost to leaner, meaner, more innovative companies overseas. Low wages was just part of the problem, the bloated structure also brought complacency so we were due for a fall anyway.
So what Bain Capital could be compared to would be re-mortgaging the house. A free-and-clear industry was saddled itself with big debt. Bain may not have been able to resell a company for more than it bought it for, but meanwhile it pocketed a fortune in management and consulting fees. As to whether it could sell it for more than it bought it for - read Barbarians at the Gate. KKR and all these clever, precise number-crunchers, in the end, were makling wild guesses and pulling numbers out of their ass during a frantic bidding war. What started and a $56/share buyout went quickly to $108 in cash and promises. Despite what Bain, Romney, KKR, Trump, Goldman, Sachs, Bear or Stearn or any other self-professed economic whiz may claim, in the end their science is no less dismal than when you or I make an uneducated guess.
GAAP is not used to value a company when we’re talking mergers and acquisitions. The value of an asset on the financial statements is irrelevant to both the buyer and the seller.
Actually, we can make this simple. From the factcheck article Jas09 posted, we see that “Bain provided no net job estimate”. Now, they certainly would have made such an estimate internally: If nothing else, having numbers that pointed towards Bained companies being more successful would surely make their future acquisitions easier. OK, yes, it’s hard to make such estimates, but that just means that whatever number they came up with would have error bars on it.
But then, after they must surely have made the estimate, they didn’t release it. Why not? The logical conclusion is that their internal estimate must have looked bad. Is there any other explanation?
but it is sufficient to mislead stockholders and others who don’t look too deep into the balance sheet… which is one reson why Johnston figured they could get away with buying a company at $56 that ultimately went for $108
And if you are a takeover artist then you have to disregard the GAAP number and create your own number which may or may not be accurate, but makes the buyout seem magically more valuable. Then sell that number to the bond underwriters and buyers who are actually taking on the risk as to whether that number is right.