An interesting article by Michael Barbaro in the New York Times looks at the 1990s buyout of an Illinois medical company, Dade, by Mitt Romney’s private equity firm, Bain Capital. In the early 1990s, Dade was the maker of medical technology based in Deerfield, Illinois. Its main product was a kind of machine that ran blood tests in hospitals, laboratories and doctors’ offices. The product was widely used but the company was badly managed.
The main story line of the article is that Romney conducted a turnaround of Dade beginning in 1994, which sucked the company dry. The turnaround worked out well for Romney and Bain Capital: it extracted $242 million, a return that was eight times its initial investment, plus fees of $100 million. The process worked out less well for others: it drove the company into bankruptcy in 2002 and destroyed some 1,700 jobs in the USA. The case shows, according to the article, “the unintended human costs and messy financial consequences behind the brand of capitalism that he practiced for 15 years.” On this account, making money by destroying jobs is precisely the kind of “slash and burn” management that Romney stands for. He enriched himself and his colleagues at the expense of the workers.
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Not so fast, say the pro-Romney forces. What the article really shows is that Dade was a triumph of capitalism. The company was bought for some $442 million in 1994 and ultimately sold in 2007 to Siemens [SI] for around $7 billion, a sixteen-times gain. If Bain hadn’t intervened, the company would have gone bankrupt anyway. Romney’s team of 10 turnaround experts from Boston worked hard, cut waste, re-energized a moribund firm, engineered successful acquisitions and opened up untapped markets. Overall, the company’s workforce grew to 7,400 workers. Romney and his colleagues had the vision to see the value locked inside a firm that was going nowhere, took the bold decisions necessary and turned the firm into a success. His work illustrates the process of creative destruction, which was accomplished in challenging economic conditions. Building successful businesses and creating jobs, Mr. Romney says, is what he knows how to do. As Romney explained in a 2007 New York Times interview, “Sometimes the medicine is a little bitter, but it is necessary to save the life of the patient.”
Which story is correct? Although we are still missing some critical information, the answer appears to be neither. The truth, as Malcolm Gladwell might say, is more complicated and more interesting.
Mr. Romney made a lot of moneyWhat is undisputed is that Romney made a lot of money for himself and for Bain. From 1984 to 1999, Mr. Romney and his colleagues made fortunes by investing in, acquiring and then selling about 150 companies. He turned an investment of $2 million in the startup office supply chain Staples into $13 million. He made $34 million, 34 times its 1986 investment, in Calumet Coach. He made $55 million, 16 times its 1990 investment, in the Gartner Group.
Read More at Forbes By Steve Denning, Forbes