By the green-hued yardsticks of Wall Street, the 1990s buyout of an Illinois medical company by Mitt Romney's private equity firm was a spectacular success.
Romney's company, Bain Capital, sent in a team of 10 turnaround experts from Boston to ferret out waste, motivate executives and study untapped markets.
By the time the Harvard MBA's from Bain were finished, sales at the medical company, Dade International, had more than doubled. The business acquired two of its rivals. And Romney's firm collected $242 million, a return eight times its investment.
But an examination of the Dade deal shows the unintended human costs and messy financial consequences behind the brand of capitalism that Romney practiced for 15 years.
At Bain Capital's direction, Dade quadrupled the money it owed creditors and vendors. It took steps that propelled the business toward bankruptcy. And, in waves of layoffs, it cut loose 1,700 workers in the United States.
Romney's career at Bain Capital, which he owned and ran as chief executive, is a cornerstone of his campaign for the Republican presidential nomination -- a credential, he argues, that showcases the management skills and business acumen America needs to revive a stalled economy. Creating jobs, Romney said, is exactly what he knows how to do.
The White House, though, is already preparing a less flattering portrayal, trying to frame Romney's record at Bain as evidence that he would pursue slash and burn economics and that his business career thrived by enriching the elite at the expense of the working class.
From 1984 to 1999, Romney and his deputies made fortunes by investing in, acquiring and then selling about 150 companies. It was high-stakes work that shaped Romney's values and views, taught him the art of salesmanship and negotiation and took him deep inside the boardrooms and factories of U.S. business.
Because financial data for many of the acquisitions are not publicly available, it is difficult to fully tally the wins and losses, the jobs created and the jobs eliminated on Romney's watch. But the experience with Dade, Bain's biggest transaction at the time, shows how Bain managed its investments, structuring deals so it would be hard for Romney and his partners not to come out ahead.
Bain and a small group of investors bought Dade in 1994 with mostly borrowed money, limiting their risk. They extracted cash from the company at almost every turn -- paying themselves nearly $100 million in fees, first for buying the company and then for helping to run it. Later, just after Romney stepped down from his role, Bain took $242 million out of the business in a transaction that, according to bankruptcy documents and several former Dade officials, weakened the company.
Even some people who benefited from that payday and found it reasonable at the time now question it.
"You would have to say, looking back, that it was too large, because it pushed us into bankruptcy," said Robert W. Brightfelt, a former Dade president who collected more than $1 million.
Bain Capital declined to comment specifically on the Dade acquisition, but cited a long history of improving companies' performance in both "good and challenging economic conditions." A campaign spokeswoman, Andrea Saul, defended Romney's tenure at Bain, saying that "while not every business was successful, the firm had an excellent overall track record and created jobs with well-known companies."
QUICK RICHES
In the early 1990s, as the U.S. economy rebounded from a recession, the biggest names in the buyout business hungrily eyed Dade, then a little-known maker of medical technology based in Deerfield, Ill.
It was ripe for a takeover. Its main product, copy-machine-size units that ran blood tests in hospitals, laboratories and doctors' offices, was widely used but rife with problems. Dade's owner, the giant health care company Baxter International, was ready to dump its aging diagnostic division.
Bain impressed Baxter's management with its vision for how to fix the ailing business. Romney, who began Bain Capital in 1983, prided himself on turning around companies like Dade -- not just polishing them for sale, as their quick-buck Wall Street colleagues did.
It was the Bain Way, reflecting the firm's roots as a spinoff of the venerable consulting firm where Romney had been a star performer, Bain & Co. At 36, Romney was asked by the founder, William W. Bain Jr., to jump into the relatively new, risky and extraordinarily profitable business of private equity.
By marrying traditional financial engineering with management consulting, Bain Capital produced much higher returns than its rivals.
As Bain Capital expanded, Romney cut back his travel to the headquarters of companies, assigning to lower-level executives the task of scouring balance sheets and interviewing managers. But he reviewed the numbers and signed off on major acquisitions, like the Dade purchase.
"He certainly approved the deal, understood it, had presentations made to him regarding it," recalled Scott Garrett, Dade's chief executive at the time. "He became quite knowledgeable about the business."
In the waning days of 1994, a small group of investors led by Bain Capital, including Goldman Sachs, paid $450 million for Dade. Bain invested about $30 million.
In 1995, Bain officials debated whether Dade should buy a competitor, a diagnostics division of DuPont Medical Products that owned technology vital to Dade's future. Some Bain executives advocated quickly selling off Dade for a tidy profit. Others counseled patience, arguing that Bain could collect even more by investing in the company for a few years.
Romney, in Bain's boardroom in Boston, listened intently to both sides and rendered a verdict: Dade should acquire the DuPont unit. Romney "wanted to double down on Dade," Garrett recalled.B
In back-to-back acquisitions, Dade bought the DuPont diagnostics division in 1996 and a German medical testing company, Behring, in 1997, whose products replaced or improved upon Dade's.
Renamed Dade Behring, it became an industry leader, just as Bain Capital had intended. With its overseas acquisition, the company's labor force swelled to 7,400 workers. The business invested in and refined products that became widely used.
RISING FIGURES
From 1995 to 1998, Dade's annual sales rose to $1.3 billion from $614 million. Its assets grew to $1.5 billion from $551 million. But another number was climbing just as fast -- Dade's long-term liabilities, which surged to $816 million from $298 million.
Cost-cutting became a mantra inside the company. Many workers did not leave on their own terms. Executives involved in the decisions said that to make Dade a success, they had combined companies in need of overhaul. And the mergers created redundant work forces that had to be winnowed.
"It's not done because they love cutting jobs," said Mark Wolsey-Paige, a former senior vice president at Dade. "It ultimately made those companies stronger."
TIPPING INTO BANKRUPTCY
By 1998, Romney and his restless colleagues at Bain began looking for a way to cash out of the firm's investment in Dade.
A hefty offer arrived. Kohlberg Kravis Roberts & Co., a rival buyout firm, proposed buying Dade Behring for $1.9 billion, according to documents filed in the bankruptcy case. But Bain executives rejected it, disappointed by the price, the documents indicate.
Bain settled on a common tactic in private equity: It pushed Dade to borrow hundreds of millions of dollars in April 1999 to buy half of Bain's shares in the company -- and half of those of its investment partners.
Bain pocketed the $242 million. Goldman received $121 million. Top Dade executives got $55 million, records show. The total payout to shareholders reached $420 million -- nearly as much as the purchase price for Dade.
The money was hard to resist, acknowledged Brightfelt, the former Dade president. "We were all glad to get some cash out," he said, "and we thought we deserved it."
A few months before the payout, in February 1999, Romney retired from Bain Capital to oversee the Olympic Games in Salt Lake City. He nevertheless benefited from the transaction, a financial disclosure form indicates. It shows that until at least 2001, he owned 16.5 percent of the Bain Capital partnership responsible for the Dade investment.
Even as the investors prospered, Dade cut 367 more jobs in 1999, documents filed with the Securities and Exchange Commission show.
The strategy that Bain put in place, executives said, as painful as it was with plant closings and layoffs, had ultimately worked. The bankruptcy "does muddy the story," said Wolsey-Paige, the former Dade executive. "Overall," he said, "it was very positive."
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