Mitt Romney's business record, a central tenet to his campaign for the White House, is encapsulated in Bain Capital's investments in North Carolina.
Take Gocom Television, a regional station owner eyeing a bigger share of the market. In 1997, with Romney as chief executive at Bain, the firm put $50 million to $100 million into the Charlotte company. With the expansion, Gocom flourished and the Boston-based private equity firm earned a hefty profit for its investors, selling three years later for a threefold return.
Now consider Charlotte steelmaker GS Industries. Bain acquired the company in 1993 with a $24.5 million investment. Bain reaped $900,000 in initial annual fees and made a 100 percent profit even as GS Industries suffocated from a debt that eventually led to more than 2,000 job cuts and bankruptcy in 2001.
Together, the two Bain investments define the ongoing argument in the presidential campaign about the Republican candidate’s credentials and the role of private equity, a high-stakes, big-dollar and largely unfamiliar world to most voters.
At the Republican National Convention this week, Republicans will tout Romney’s biography, call him a job creator and suggest his Bain years gave him the insight needed to resurrect the nation’s troubled economy.
Democrats argue the opposite. President Barack Obama’s campaign depicts Romney as a “corporate-buyout specialist” who sought to make money regardless of whether the companies slashed costs, eliminated jobs or went bust.
For North Carolina companies and workers, both stories are familiar. Bain has played a significant role in the state’s business arena and left a mixed record, according to a News & Observer analysis of corporate records and news reports.
Over a 10-year period, the firm pumped huge sums into at least five companies based in the state and many other corporations with significant operations here. Bain’s investments in just the North Carolina-based companies totaled about $1 billion and affected roughly 5,000 employees in the state and thousands more elsewhere.
Among Bain’s North Carolina investments: Interpath Communications, a Morrisville technology company that laid off hundreds of workers and essentially dissolved two years after Bain’s investment; Sealy, the well-known mattress maker that relocated its headquarters from Ohio to the High Point area under Bain’s watch; and US LEC, a Charlotte telecommunications company that expanded its territory before being merged with another Bain company.
For some former Interpath employees in the Raleigh area, Bain’s emergence in the campaign dialogue revives strong feelings and bad memories.
Charley Bratton co-founded the Internet services company in 1993. But with Bain primed to purchase the company, he left. “The (original) focus was to lift businesses across North Carolina ... but I don’t think that had any driving force for Bain,” he said.
The Romney campaign said the candidate left Bain in February 1999, before the Interpath deal was finalized in June 2000. But Romney remained listed as a managing partner in Bain documents until 2002. Even if Romney played no role, Bratton said he believes the Interpath deal speaks to the candidate’s business record.
“He’s a vulture – or has been as a business person,” said Bratton, a registered Republican. “His goal as a business person was to grow his wealth, grow wealth for his stockholders ... and he did that in a manner that was absolutely ruthless.”
On the campaign trail, Bain’s investments in companies with North Carolina ties are political fodder for critics:
The Obama campaign and a supportive super PAC are using GS Industries to attack Romney in television commercials that highlight workers at the steelmaker’s Kansas City, Mo., plant who lost jobs and benefits when it hit bottom.
US LEC’s corporate records from 2001 list Romney as the sole shareholder and “the controlling person of Bain Capital,” raising questions about whether Romney left in 1999, as he has asserted. Romney’s campaign said he was not active in operations or investment decisions, though his name remained on official Securities and Exchange Commission filings until 2002.
The $150 million Bain put into US LEC in 2000 came through Sankaty High Yield Asset Investors, a Bermuda financial company solely owned by Romney and his wife, according to tax returns and corporate documents reviewed by The Associated Press. Romney denies getting a tax break through his offshore investments.
SMTC Corp., a Canadian electronics firm with a Charlotte manufacturing facility, outsourced some of its production to Ireland and Mexico in 2000 and closed the North Carolina plant in 2003. Bain bought a different electronics manufacturing company in 1998 that later acquired SMTC. But the deal wasn’t finalized until five months after Romney left.
‘The real thing’
Romney, 65, co-founded Bain Capital in 1984 after working with Bain & Co., a well-established management consulting company, and Bain Capital made him rich.
Tom Darden, the chief executive at Cherokee investment firm in Raleigh, worked at the consulting company with Romney for a couple of years in the 1980s.
“He was the real thing: approachable, decent and funny,” said Darden, who hasn’t decided on a candidate this year. “I have nothing but the highest praise and admiration for the guy.” He said negative images of Romney on TV don’t match the man he knew.
Romney led Bain Capital for 15 years, using investor money to acquire ripe companies, some of which wanted the money to expand and others that needed it to survive. The private equity firm collected management fees, shared profits and sometimes made a bundle when a business was sold.
Republicans see his private-sector record as an asset. Running mate Paul Ryan ticked off a list of Romney’s accomplishments at a recent North Carolina rally, including “being successful in business, starting new businesses, turning around troubled businesses.”
Romney’s campaign says he created 100,000 jobs through Bain’s investments in other companies, noting success stories such as Staples and Sports Authority. The campaign tally did not include jobs that were cut through mergers, efficiency efforts or bankruptcies under Bain’s watch.
Josh Kosman, the author of “The Buyout of America,” examined the broader role of private equity and determined that “most of the time private equity firms hurt the companies” they purchase. Four of Bain’s 10 biggest acquisitions under Romney later ended with the acquired company in bankruptcy.
Citing a financial study in his book, Kosman concluded “it is pretty clear ... that they destroy jobs.” Even when they make money, Kosman said it “goes to pay debt, sometimes it’s put back to the private equity (firm) in the form of a dividend, but it’s not used to build that company and the companies get much weaker.”
Dinner in Paris
The CEOs in North Carolina who worked with Romney all say Bain was a positive influence on their companies, though they paint divergent pictures of the candidate’s role in the deals.
In the Gocom acquisition, Romney took a hands-on approach. Just days before the deal closed, he asked the company’s founder and CEO Ric Gorman to meet with him in Boston.
The timing made Gorman nervous, he said, but Romney put him at ease. “What really surprised me about that – not one question was asked by Mitt about the business model,” Gorman said in a recent interview. “We just talked about priorities, family, what’s important in life to each of us individually.”
Gorman, who lives in Hilton Head, S.C., surmised Romney already knew the answers to the business questions. “This was a decision as to whether or not he wanted to be partners with me and my team,” he said.
Under Bain, Gocom didn’t expand into as many underdeveloped TV markets as Gorman hoped. But the company hit financial targets and Gorman said a Bain managing partner took him and his wife to Paris for dinner.
The partnership ended three years after it started when Bain forecast a downturn in the TV advertising market and sold Gocom in 2000. Gorman said Bain tripled its money.
In other deals, such as the $800 million acquisition of Sealy in 1997, Romney didn’t appear to get as involved. The company’s former CEO, Ron Jones, said he had limited interactions with Romney, talking to him only in passing at annual investor meetings. Jones said he worked with other Bain managers and persuaded them to support the company’s plan to relocate to North Carolina, which it did with the help of state incentives.
Roger Regelbrugge, the former CEO of GS Industries, said he only met Romney once in his tenure at the steel manufacturer. At the meeting, Regelbrugge said he expressed concern to Romney about the company’s high debt and large management fees. But the company made short-term money that satisfied Bain, Regelbrugge said.
Three years later in 1998, Regelbrugge stepped down when his contract expired.
“It was difficult to manage a company without a reasonable capital structure and massive amounts of debt,” Regelbrugge said. But he said Bain isn’t entirely responsible for the bankruptcy, criticizing the management that succeeded him.
Layoffs at Interpath
At Interpath Communications, Michael Fox served as CEO in June 2000 when Bain paid $50 million for a majority stake in the company, one of the Research Triangle’s first tech successes.
Prior to the acquisition, Interpath had started to struggle. And once in control, Bain moved quickly to cut costs, laying off 50 employees within a month. By August, after a round of layoffs and larger attrition, the company had 220 employees compared to 700 at the start of the year.
“Their job is to invest in companies and grow the companies, acquire additional companies and sell it later for a profit,” said Fox, who left before the end of the year.
Bain shed many Interpath divisions and merged the company with Maryland-based Usinternetworking in 2002. Only about 20 employees stayed in the Triangle and others were offered transfers or severance packages.
The layoffs became apparent the morning that security guards greeted employees at the door. They received sealed envelopes and were sent to separate meetings: one for those leaving and one for those staying.
“They handled it like we were escaped convicts or something,” said Bruce Garland, a former employee. “It was not handled with any kind of dignity at all.”
Many saw it coming. “The only reason for a non-tech company to purchase a tech company,” said David Both, a former employee, “is to strip out the good parts and suck the money out of it and kill off the rest.”
Researcher Teresa Leonard contributed to this report.