Bain Capital would invest about $2.5 million in Staples and, after taking the company public in 1989, made $13 million on the deal. Romney stayed on the board for many years, leaving in 2001 to run for governor of Massachusetts. Staples had 1,100 employees when it went public; today it has about 89,000.
While this may be Romney’s ideal company to talk about on the campaign trail - and it alone gets him close to the 100,000 jobs he claims to have helped create - it does not define how he spent most of his time running Bain Capital.
With leveraged buyouts, the investment firm purchases a mature company, partially with its money and with debt it transfers to the company. The new owners then usually streamline the business and seek to resell it.
For example, in the same year that Romney invested in Staples, he led the firm in its $200 million acquisition of Accuride, a wheel rim maker that was part of Firestone. Bain put down only $5 million and borrowed the rest, using junk bonds from Drexel Burnham Lambert. Eighteen months later, Bain resold the company and reaped $121 million in its first taste of the big time in the go-go 1980s.
Soon after, Romney steered Bain Capital more toward debt-driven buyouts. There was more money at stake and less risk for Bain than betting on untested technology.
Venture capital is “absolutely more risky’’ than buyouts, said Howard Anderson, a venture investor and former entrepreneur who teaches at the Sloan School of Management at the Massachusetts Institute of Technology. For one, he said, buyouts often involve companies that have been in business for a long time. Second, buyout firms tend to take profits out of deals quickly, even having the target companies take on enormous loans to pay the investors back.
“These guys have figured out a way to make money even if the company loses money,’’ Anderson said. “It’s heads we win, tails we win. Not always - but they can do that.’’
