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Romney’s run makes PE a target

Expect Mitt Romney’s private equity background to get more attention, representing his tenure at Bain Capital as a greed driven jobs killer. Romney needs to do a better job explaining the private equity model.

Mitt Romney’s private equity track record is in the crosshairs.

Republican presidential candidates have begun to signal they will use Romney’s years at Bain Capital as a point of attack in an increasingly contentious fight for the White House. In the end this creates political pressures for an anti-private equity candidate who wins the White House to back anti-private equity rules and regulations in kind.

Mitt Romney

At a recent campaign stop in Iowa, Rick Perry, the governor of Texas and a front-runner for the Republican nomination, was one of the first candidates to go down this line, quipping: “I was in the private sector for 13 years after I left the Air Force. So I wasn't on Wall Street, I wasn't working at Bain Capital.”

Perry’s intent was clear — to wrap Romney’s name around an industry voters at best know little about and at worst perceive as slashing jobs and loading once healthy companies with debt. Unfortunately, it’s a public perception bolstered by some news articles.

Earlier this month in an op-ed, The Washington Post commented: “Private equity is a hard-nosed business, and voters may decide that’s precisely the kind of approach the economy needs to get it back on track. Or through the prism of the 2008 financial meltdown, they may see in private equity — with its focus on short-term gains and its reliance on cheap and easy credit — the same impulses that got the country into a fix in the first place.”

Romney’s record at Bain Capital was further challenged at a Republican debate by NBC news anchor Brian Williams, who as one of the debate’s moderators must ostensibly present candidates with unloaded questions. Instead Williams prodded Romney to respond to a description of Bain Capital as “among other things…buy[ing] up companies, stripp[ing] them down, gets them ready [and] resells them at a net job loss to American workers.”

Romney’s rebuttal was strong: “You know, that might be how some people would like to characterise what we did, but in fact, we started business at Bain Capital, and when we acquired businesses, in each case we tried to make them bigger, make them more successful and grow. The idea that somehow you can strip things down and it makes them more valuable is not a real effective investment strategy. We tried to make these businesses more successful…we added tens of thousands of jobs to the businesses we helped support. That experience, succeeding, failing, competing around the world, is what gives me the capacity to help get this economy going again.”

And there is much to celebrate in his private equity record. During his time at Bain, many portfolio companies flourished including: office supply company Staples, which has created 90,000 jobs, and sporting goods chain Sports Authority, which created 15,000 jobs.

Romney is best served when he takes a measured approach to attacks on his Bain record

To be fair, Romney’s track record is not perfect. While some portfolio companies were ultimately turned around, with jobs created, there are failures that Romney has glossed over.

At Dade Behring, an Illinois-based medical testing company, Bain cut at least 1,600 jobs before the firm entered into bankruptcy in 2002. Also, DDi, an electronics company in California, filed for bankruptcy in 2003 after Bain sold shares in the company generating at least $85 million and billed $10 million in management fees.

Romney is best served when he takes a measured approach to attacks on his Bain record.

“Sometimes I was successful and helped create jobs, other times I was not,” Romney rightfully said during a campaign stop over the summer.

It’s unlikely that his political rivals and mainstream media organisations will take a measured approach when discussing the private equity model. Demonising private equity managers is not the answer.

However, private equity managers should expect this type of behaviour to intensify should Romney gain the Republican nod to challenge President Barack Obama in the 2012 election.