Drip… drip… drip. That rabble-rousing socialist rag the Financial Times investigates, and discovers “an early deal by Bain Capital marked by unlawful suppression of a pilot’s union”:
The first leg of Mitt Romney’s journey to a private equity fortune ran between Nellis Air Force Base in Las Vegas and the Tonopah Test Range, deep in the Nevada desert.
In the mid-1980s Tonopah, also known as Area 52, was home to the newly developed, top secret F-117A stealth fighter. Pilots and support personnel lived in Las Vegas and spent their working week in the desert. A $10m-a-year contract to shuttle them back and forth was the prize asset of a small charter company called Key Airlines, which became a formative deal for Bain Capital, the private equity firm that Mr Romney cofounded, and where he built the career that is his main credential for the White House…
The tale of Key Airlines spans the creation of Bain Capital in 1984 – spun out from the Bain & Company management consultancy – and provides a glimpse of its methods and results. Key grew during its Bain years. Sales roughly doubled from 1983 to 1985 and employment more than doubled to about 200 jobs. Bain bought the company on the cheap, rode a turn in the industry cycle and then sold for a remarkable price.
A start-up pilots union was unlawfully suppressed, according to a federal court ruling. Some other methods foreshadowed the later success of Bain Capital: Key Airlines was an early example of a leveraged buyout. The initial deal was 100 per cent debt financed with no capital from the investors.
Bain also reshaped Key Airlines, turning it from a profitable, taxpaying company with a $13m balance sheet and its own aircraft, into an operating company with a $2m balance sheet and a holding company from which it sold assets separately….
Meanwhile, the Boston Globe discovers, today’s Bain Capital doesn’t play well with other corporate persons, either:
Bain is willing to participate in the public debate about its brand only to a point, however. Unlike some other leading firms, which are taking more active steps to buff private equity’s image, Bain has stuck largely to a defensive posture, believing the most prudent strategy is to respond to news stories as needed, correct the record when falsehoods surface, and provide talking points to employees and management teams at companies it controls. The firm remains averse to opening up with the press in a meaningful way. (After a month of negotiations, I was given almost nothing on the record from Bain’s managing directors.) Bain executives speak of keeping their heads down, with the expectation that, in the words of one, “this, too, shall pass.” Bain’s reluctance to engage more forcefully is a source of puzzlement among others in the industry….
Several big firms, Bain included, banded together in 2007 to establish a trade association called the Private Equity Council, realizing they needed to be more image-conscious. (Bain also began spending heavily on Washington lobbyists.) The Private Equity Council in 2010 changed its name to the Private Equity Growth Capital Council, to emphasize the industry’s work growing companies. With new leadership in 2011, it prepared a major public relations push in anticipation of the political scrutiny of the presidential cycle. That scrutiny came all right, though months earlier than everyone expected, when Romney’s Republican rivals zeroed in on his business resume…So the council got busy. It began providing political reporters a primer on how the business operated. It has produced slick videos featuring companies that have thrived under private equity control, as part of a multimillion-dollar Private Equity at Work campaign the group launched in February. And it is connecting leaders of companies owned by private equity firms with members of Congress, to make sure lawmakers know the value of those businesses to local economies. The member firms in the trade association — there are three dozen in all — took some persuading before they accepted that the robust outreach plan was worth the time and expense, says council president and CEO Steve Judge. “They put us through our paces,” he says. Ultimately the firms came around.
But there’s one glaring exception: Bain Capital. Bain dropped out of the trade group at the end of 2010, just as the presidential race was approaching. It has not rejoined. If there were ever a time one would expect to see Bain standing shoulder to shoulder with its peers, it would be now. The firm, though, has opted to go it alone and let the industrywide PR effort carry on separately.
Given its leading role in the political theater, Bain’s absence has raised eyebrows — and prompted a little resentment — at other firms. “You scratch your head when you hear it,” says an executive at another private equity outfit in the consortium. “It reflects a lack of political sophistication and it reflects, quite frankly, a free-rider mentality.” An executive at a different firm says many in private equity are nonplused, especially because the critique of Bain had “splashed mud” on everyone else. “I thought we’re better off standing together defending the industry’s record,” this executive says. “You would think you’d want your friends around.”
Bain executives declined to address the criticism on the record. They say the decision to leave the trade group had nothing to do with the looming campaign. They say they abandoned it because Bain’s interests were different from other firms’. They also say they didn’t want to share proprietary information with competitors and that they simply felt they could be more effective communicating directly with their many stakeholders. “We feel like that’s our obligation really,” one executive tells me. “I don’t feel like we need to do more than that.” Bain executives say they’re agile enough to change course if they determine they need to do things differently. For now, another executive says, “I think we’re fine by ourselves.”..
Nothing to be “puzzled” about. Bain Capital is merely upholding the foundational ethics of its noble founder: We Got Ours, Fvck You Guys!
Mudge
But they don’t seem to be happy with what they got. They want lower taxes and no regulatory oversight. Maybe they got theirs, but now they want ours..the “fuck you guys” seems to be a carryover position.
red dog
Everything about Bain and it’s amoral officers is about taking supreme advantage of tax and bankruptcy laws. The idea that this does anything other than create untaxable wealth is absurd. Mitt and his cronies do it so well and it does not bother them…at all. In fact in their world it is bragged about.
Jay in Oregon
It reminds me of a quote from Darl McBride, CEO of SCO, which tried to sue IBM over code they had contributed to the Linux operating system that SCO claimed was theirs; the expectation was that SCO thought they would be able to charge Linux users a fee to use “their” code.
At one point, when discussing the various agreements that SCO had with various parties, McBride said “Contracts are what you use against parties you have relationships with.”
cmorenc
For better or worse, the noise and splash generated by Paul Ryan’s entry onto the campaign scene (along with the accompanying escalated controversy over Medicare) has for the moment sucked up most of the available media oxygen, eclipsing for the moment much attention to Romney’s behavior and ties to Bain. In fact, Ryan’s entry has even put Romney’s tax issues into partial eclipse.
I’m nervously unsure whether the dramatic shift in attention to Ryan is, on balance, such a good thing despite the huge potential liabilities he brings to the ticket with his radical right wing stances. This development has resulted, as Romney indeed hoped, on diverting a significant amount of negative attention and pressure from himself, giving him at least a little breathing space to try to define himself and negatively define Obama that, pre-Ryan, team Obama had successfully kept him too defensively off-balance to obtain.
raven
I’ve been from Tuscon to Tucumcari
Tehachapi to Tonapah
Driven every kind of rig that’s ever been made
Driven the back roads so I wouldn’t get weighed
And if you give me: weed, whites, and wine
And you show me a sign
I’ll be willin’, to be movin’
Baud
@cmorenc:
It’s the GOP way: Do so many horrible things that your opponents starting worrying about which thing to focus on instead of thinking about how best to fight them.
pseudonymous in nc
Not just vulture capitalism: vampire capitalism.
That sounds about right. Bain Capital is not a business operation in the way we usually think of business. It’s barely even a private equity company judged by the standards of Sand Hill Road, which isn’t to say that those people are angels. It acquires companies no-money down through baroque financing and Russian-doll corporate structuring, sucks out the life and sends a bill to whatever’s left.
Spaghetti Lee
Cripes. What a crook. Once all these Bain stories are done coming out, Romney’s gonna make Richard Nixon look like Fred Rogers.
JoeShabadoo
Can someone explain the purpose of leveraged buyouts outside of making guys like Mitt rich by screwing people over?
I would love to be able to go over to my neighbor and tell him that I just bought his pool. When he says “How?” I could tell him “I borrowed against it.”
Is there some hypothetical situation where a leveraged buyout can actually be used for good? I just don’t see any situation with basically zero risk for the buyer but tons to the thing being sold to be good.
Barney
Another Bain Capital story, involving Paul Ryan’s brother, and a conflict of interest for Mitt Romney when he was MA governor:
US election: Mitt Romney may have breached ethics laws through company linked to Paul Ryan’s brother
…
c u n d gulag
Bain Capital- bad Disco dancing deadbeats:
(More more more) how do you like it, how do you like it?
(More more more) how do you like it, how do you like it?
(More more more) how do you like it, how do you like it?
NOT AT ALL!
James Gary
@raven:
“I’ve been from Tuscon to Tucumcari
Tehachapi to Tonapah”
Great song, but growing up in the American Southwest, those lines always perplexed me. Tuscon’s just an an easy day-and-a-half’s drive from Tucumcari–ditto for Tehachapi and Tonapah. Basically, the guy’s saying he’s never driven anywhere outside Southern CA/Arizona/New Mexico, which hardly seems boastworthy.
Calouste
Go Hillary:
R-Jud
@Barney: Cripes, that’s in the Torygraph? I guess he really did piss Cameron off.
Litlebritdifrnt
Like I said a couple of weeks ago I hope OFA has got some dedicated interns in windowless rooms in Chicago poring over the records of all of the companies that Bain had dealings with and figuring out how much tax payer money went into bailing out pension funds that had been raided by Romney and his friends. The resulting chart should be simple
$20 million the amount Romney profited, $25 million the amount the tax payers paid to bail out the pension fund. (My made up numbers of course). It should make for some devastating ads.
The Republic of Stupidity
Hmmmm… this is finally beginning to make sense…
Even though staunch, committed Republicans can’t stand Mitt Romney, he does have that unique combination of skills, natural instincts, and experience required to help them accomplish a long-cherished goal… the final looting of the country’s resources begun under
Bush II,Bush I, Reagan…Vampire squids from Hell, indeed…
I also find it interesting that for the 2nd straight electoral cycle, the Republican candidate for POTUS found it necessary to choose a VP simply to draw attention away from his own, essentially unpalatable, persona…
It’s s weird… even Republicans can’t stomach Republicans at this point…
geg6
When my John was a high flying consultant (back before 2008, when it all crashed and he had left consulting for a vp spot in a company he’d been consulting for and which promptly went under after the crash), he often competed for accounts with Bain and knew quite a few of them. In a business that is, by definition, a shark tank, Bain was considered the least ethical and most vampire squid-like.
Both John and I are glad he’s out of that business, but we sure miss the money.
Nutella
Yep. Moochers and looters.
quannlace
Jeebus, Bain, and Romney, are starting to sound more and more like the plot from ‘Wall Street.’ Maybe Oliver Stone can do Mitt’s life story.
quannlace
What’s that line from the play, “The Little Foxes.” ?
‘there are people who eat the earth and those that stand around and watch them do it.’
raven
@James Gary: UM, methinks you is over thinking it! It’s not “I’ve Been Everywhere”.
PeakVT
… and it reflects, quite frankly, a free-rider mentality.
Hilarious, coming from a PE guy.
Dude, the road out front needs paving. Why don’t roll up your sleeves and do some work that benefits society for a change?
John - A Motley Moose
@The Republic of Stupidity:
FTFY
Corner Stone
“As below so above and beyond, I imagine”
PurpleGirl
@Jay in Oregon: Do you mean they contributed to IBM’s AIX operating system? AIX was IBM’s version of Linux. (I have a soda/beer can cozy that says “We use AIX”.)
The prophet Nostradumbass
@PurpleGirl: AIX is not IBM’s version of Linux. It is IBM’s version of Unix.
Roger Moore
@JoeShabadoo:
A leveraged buyout can make sense as long as the leverage remains reasonable and the management follows the normal rule of paying debt before equity. When used that way, it can help a small group of like-minded managers take over a company so that it can have reasonable direction without being distracted by the need to meet short term goals. It also makes sense as a way of managing spinoffs and other corporate restructuring.
But that’s exactly how most people do buy their houses; a mortgage is basically a leveraged purchase of a house. You put down a fraction of the total price and borrow the rest against the value of the house. That leverage is why banks can force you to insure your property as a condition of the mortgage.
Roger Moore
@PurpleGirl:
No, it was about IBM’s contributions to the Linux Kernel. There were several things that IBM originally wrote for AIX (which was based on the SysV code SCO was licensing) that it later contributed to Linux. I know their stuff on RCU was a big part, and I think JFS was also mentioned. Anyway, it was stuff that had clearly been developed by IBM and didn’t contain any actual SysV code. SCO still claimed that IBM couldn’t contribute it to Linux because it having once been part of AIX meant it was a derivative of SysV and hence SCO’s intellectual property. There were a ton of problems with SCO’s legal theories, but that was the core of their claim.
dr. bloor
@cmorenc:
I wouldn’t worry too much about this. If the campaign really wants us to focus on a VP candidate whose only conceivable rationale for being plucked from Congress was his budget plan–which they now need to run like hell from–that’ll do for the time being.
As for Romney, he needs to “re-introduce” himself to the country at the convention, in part by running a biographical video that will be the Sound of Music, Mr. Smith Goes to Washington and free ponies for everyone all rolled into one. I have little doubt that the Obama campaign’s response will be the politcal equivalent of a snuff film, and Mitt’s financial misdeeds will be back on the front burner.
Haydnseek
@raven: Thank you. Every time I see “Tonopah” in print or hear someone mention it, I immediately start playing “Willin'” in my head.
SiubhanDuinne
@Calouste: Yikes, is that a fer-real interview? If so, kinky please?
SiubhanDuinne
@SiubhanDuinne:
LINKY. DAMMIT. NOT KINKY.
(fywp)
Corner Stone
@SiubhanDuinne: Oh come on! We knew what you meant.
{winks}
Joeshabadoo
@Roger Moore: okay. Thanks for that but it still doesn’t explain the ones that are 100 percent financed that way.
Doug Danger
@PurpleGirl: AIX is not and never was Linux. In no way, shape or form. go hang out on Wikipedia for some details.