Whether Republican or Democrat, dealmakers can learn from the unfolding saga of Mitt Romney and his continuing exposure in the Media. His tenure at Bain Capital, a long time leveraged buyout firm is under close examination and the details of his history and performance are routinely reported. What can the average buyer learn from Mitt? A lot actually. Bain, the consulting firm turned LBO shop Bain Capital started its dealmaking in turnarounds. As their track record and investor base grew they went large scale and invested in high profile deals such as Staples, Brookstone, Domino’s, Sealy Toys and became among the most prominent private equity firms in the US.
Mitt as it turns out not only profited while he was working at Bain, but long afterwards as well. A good chunk of his wealth was the result of years of collecting residual income from his share of the deals after he retired from Bain. I met some folks from Bain years ago and can attest that they were all very impressive. And Mitt himself was the golden boy Harvard educated and highly respected at both Bain the consulting firm (which he saved from failure in the early nineties) and Bain Capital where he essentialy started the buyout business from scratch.
As the media continues to point out now that Romney is in mainstream politics, his firm was awash with layoffs and bankruptcies. We as dealmakers know that the dopes running ads about layoff and bankruptcies are just that. The peak of naivety is talking about layoffs and bankruptcies and conveniently neglecting the rest of the story. And for those of you would-be private equity guys out there here is the story.
When you are doing turnarounds and acquiring 100 big companies bankruptcies and layoffs are an absolute necessity. Bankruptcies clean up a company so it can thrive again, layoffs can make a viable company out of a floundering inefficient mess. Layoff and bankruptcies are simply the result of a broken business model and/or inept execution of the business model. Often times the people being laid off should never have been hired because the company never could have afforded them. And many were not productive anyway. No free rides guys, every company has unproductive employees and every company has to take steps to make itself profitable. No crime in that. In spite of all the bad press Bain made a ton of money for its investors and they surely did not care if there were some layoffs along the way. Should we care? Only if we embrace the concept of paying people who don’t deserve it, or employing unproductive employees, or giving them (gasp) entitlements.
Even if you acquire 10 companies not 100 you WILL have bankruptcies. Get used to it. It is a fact of life. Never mind the recession. Bankruptcies are a necessary part of doing deals. And closures. You don’t hear much about Mitt closing any companies, they just get bankrupted and cleaned up. They become more efficient and run like they should. Do not be afraid of downsizing your problem company. Mitt doesn’t even get credit for bailing out all the crumby companies out there and dumping money into failing companies, keeping them afloat when they should be closed. And by the way you can thank Unions for the layoffs as well. If we don’t stay competitive then what do you expect?
Anyway this does not mean I endorse Romney as a Presidential candidate it just means I understand what the media and pundits do not. That Mitt was a top level accomplished manager in the most sophisticated of all industries and you cannot take that away from him by slinging the word “layoffs” around. We should learn our dealmaking from Mitt and embrace the bankruptcies and layoffs that are part of our trade.
