Mitt Romney's Bain Capital: Staples, Dade Behring and the 1999 Exit Fight

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In 1984 Bill Bain asked consultant Mitt Romney to lead a spinoff of Bain & Company that would buy companies and fix them with consulting methods. Romney founded Bain Capital with T. Coleman Andrews III and another partner, and he was its president, CEO and sole shareholder of the management company. It took a full year to raise $37 million from investors including Mortimer Zuckerman, Robert Kraft and Salvadoran families fleeing the civil war, who with other Latin American investors put in about $9 million through companies registered in Panama. In 1985 Romney was so afraid of losing the money that he considered returning it. In 1986 the firm put $4.5 million into Staples, an office supply supermarket conceived by Thomas Stemberg and Leo Kahn, earning a nearly sevenfold return; Romney sat on its board for over a decade. Gartner Group returned 16 times the investment.

In 1989 Bain Capital moved into growth capital and leveraged buyouts, giving acquired CEOs large equity stakes under agency theory. Studies found the firm lost money or broke even on 33 of 68 deals, and 17 of 77 companies went bankrupt, yet 10 deals produced 70 percent of profits. Ampad, GST Steel and Dade Behring, bought between 1992 and 1994, paid off for investors and later filed for bankruptcy; Ampad strikers asked Romney to intervene during his 1994 Senate race, and he said he had no authority to. In February 1999 he left to run the Salt Lake City Winter Olympics, setting off a partner power struggle. SEC filings listed him as sole shareholder, director, CEO and president until 2002, when he completed a 10-year retirement agreement.

• Bain's analysts studied Staples foot traffic, supply chains and inventory flow rather than writing a passive check.
• Dade Behring alone produced an eightfold return, and Ampad generated over $100 million in profit for the firm.
• In a dividend recapitalization, an acquired company borrows more money to pay its owners a cash dividend, adding to its own debt.
• GST Steel's bankruptcy left a large unfunded pension liability.
• Romney was Bain Capital's first and last CEO; a committee has run the firm since his departure.