Tuesday, January 10, 2012

How Romney Destroyed Jobs and Why It Won't Matter in the GOP Primary

Mitt Romney (center) and colleagues at Bain Capital
Over the next few days you may come to hear some dirt about Republican front-runner Mitt Romney.  A 28-minute video is being released by a PAC affiliated with Newt Gingrich that was produced by somebody formerly affiliated with Texas Governor Rick Perry's campaign.  In short, the video takes shots at Romney and exposes some of the skeletons in his closet.  One of those skeletons is how our dear Mitt made his millions at the expense of workers losing their jobs.  Indeed, the Wall Street Journal recently ran an article which studied the 77 companies effected by Mitt Romney's venture capital firm, Bain Capital, from 1984 to 1999 while Romney was in charge.  From a strictly financial perspective, Bain Capital did relatively well; from 1984 to 1999 it turned $1.1 Billion in investments into gains of $2.5 Billion.  Likewise, Romney also ate well from this success; he earned between $190 Million to $250 Million personally during this time period.  Not too shabby, right?  But, again, that only tells the story from a strictly financial perspective.  When we look at the story from the perspective of the workers at these companies - many of whom lost their jobs as a result of Bain Capital's manipulations - it paints a completely different picture.

Venture Capital/Private Equity 101
In order to provide a better context for what exactly Mitt Romney and his crew were doing, it's important to understand just what exactly a venture capital firm does.

Venture capital firms (which fall under the umbrella of Private Equity) typically start by finding a struggling business that the firm feels could be very profitable by making a few key changes much in the same way that a real estate developer finds a run-down house that he or she feels could be flipped for a nice profit with a little repair work.  Once they find John Doe and Susie Q's struggling mom and pop shop business, the venture capital firm then goes out and finds investors to put up the capital needed to "fix" John & Susie's business.  Pooling all of this money together, the venture capital firm then buys a large ownership interest in John & Susie's business, thereby taking control of the company itself.  Once the venture capital firm has control of John and Susie's business, it then goes to work implementing its own game plan as it sees fit in an effort to make the business profitable.  This may mean selling off certain business assets, reducing office space, or even reducing the company's work force.  Whatever it takes to turn a profit.

Once John and Susie's business becomes profitable again, the venture capital firm then realizes a return on its investment by either (i) taking the company public by offering stock through an Initial Public Offering (IPO) or (ii) finding a wealthy company/individual that/who will buy John and Susie's entire business in one fell swoop.  Once either of these transactions has happened, the venture capital firm collects all of the money, pays back all of its investors, and whatever remains after all is said and done is kept by the venture capital firm as profit.  As you can imagine, this can be quite a large sum of money.  It is not uncommon for venture capital firms to turn profits of $10's or even $100's of Millions of dollars on a single deal.

Romney's Venture Capital Firm
From 1984 through to 1999, Mitt Romney was the head of a venture capital firm know as Bain Capital.   As the Wall Street Journal reported, of the 77 companies Romney's firm was involved with during this time period, 17 of them (22%) were forced into bankruptcy after his firm was done tinkering with them.  Mathematically speaking, that's not a bad track record...that is unless you used to work at one of those 17 companies.

click on image for short list of other bankrupted companies
One such company was a circuit board producer by the name of DDi.  DDi had over 3200 employees before Romney's firm came along.  Once Bain Capital become involved, DDi was forced to let go of 40% of its work force (1300 people).  After Romney's firm "flipped" DDi with an IPO in 2000, DDi then went completely bankrupt 3 years later.  Romney's firm, however, made $116.7 Million dollars from the deal.

Pursuant to the Wall Street Journal, Romney's firm profited millions of dollars from doing the same thing to at least 16 other companies that we know of.

Why This Probably Won't Matter to Republican Voters During this Primary
Venture Capitalism is a sexy form of free enterprise in our country, but clearly there is the potential for a real downside when people's lives are negatively impacted.  The real takeaway from all of this should be the human element, not the large financial gain.  Sure, Romney might have made some money for his investors, and that undoubtedly looks good to Republicans who believe in the free market, but the job loss angle will not play over well to a general election audience with unemployment sitting at 8.5%.  There's an extremely low tolerance among the general public for anybody out there who puts an honest worker out on the street.  But we're not in the general election.  We're in the Republican primary.  Meaning, you may have lost your job to a venture capitalist like Mitt Romney, but as far as Republican voters are concerned, as long as somebody was able to make some money off of your tragedy then it's all good.

1. What are your thoughts on venture capitalists?
2. Should we overlook the fact that Romney bankrupted 17 companies because he personally turned a profit?
3. Should we overlook the fact that Romney bankrupted 17 companies because he made 60 companies profitable?
4. Will this story gain any traction during the Republican primary?
5. Will this story gain any traction during the general election?
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