And he used smaller firms to find vulnerable companies without paying the former the finder’s fees they were owed.
In February 1996, for instance, Bain Capital made a highly-publicized, highly-lauded purchase of what is now known as Experian, a consumer credit information business, then sold the company in 1996 to a British retailer for a $500 million profit. The issue: It was actually James McCall Springer’s small California-based firm who recommended the company to Bain. As Springer wrote in an e-mail he fired off to Romney and Bain Capital the morning he discovered the purchase:
As you are aware [Springer's firm] brought each of you the idea and reasons for acquiring TRW ISS/REDI… We provided you detailed business and strategic plans, company organization and cost structures, management tendencies and requirements, competitive and customer market investigations, emerging market opportunities, new or improved product and service opportunities.
Springer was eventually able to settle for an undisclosed amount, but many firms aren’t so lucky. Bain Capital’s strategy, unlike other private equity firms, was not really to purchase ailing companies and turn them around: It was to invest in moderately profitable entities that could afford to pay the titanic loans Bain and partners took out on behalf of the company.
Matt Taibbi’s recently published screed broke it down:
Here’s how Romney would go about “liberating” a company: A private equity firm like Bain typically seeks out floundering businesses with good cash flows. It then puts down a relatively small amount of its own money and runs to a big bank like Goldman Sachs or Citigroup for the rest of the financing. (Most leveraged buyouts are financed with 60 to 90 percent borrowed cash.) The takeover firm then uses that borrowed money to buy a controlling stake in the target company, either with or without its consent.