State of The Union 2012

[Red Arrow]

How about every time with Cerberus and Blackstone?  And never with Berkshire Hathaway.  And sometimes by Bain with Mitt involved. 

More literary exaggeration?  Your credibility is pretty thin, at least with me on this type of subject.

[Red Arrow]

Yep.  It's the script of rational, reasoned thought.  Direct opposite of The Script....

Your old-timers disease is corrupting your perception of reality, what is rational, and what is reasoned.  I will agree that your script is somewhat opposite of what you claim "The Script" is.

[we vs us]

Bain and its ilk are interesting creatures to me.  They don't directly create jobs (not like the Widget Company, that owns a factory), but they do perform something of a service to the overall economic environment.  That service is to function as something of a digestive enzyme, breaking down companies into constituent parts and passing them along as nutrients (of a sort) back into the economic bloodstream. 

Sorta.  I guess.  My point is that what they do certainly isn't illegal, and serves some function to the economy at large, but it also can be predatory.  If Bain takes an ailing company and turns it around for a profit, good on them.  If Bain takes a fully functioning company and decides it's worth more -- to Bain -- in pieces rather than as a complete unit, then bad on them.   In that case, Bain is a job destroyer and a net negative (IMO). The unfortunate part, to me, is that they are wholly unrelated to the primary product or management of a given company.  They judge a target solely as a series of entries on a ledger, rather than from a more holistic standpoint (holistic = as an employer, a producer, a part of a given community -- city, state, otherwise).  This makes some people money (primarily Bain stakeholders) but again is unrelated to actual target company itself, more than likely leaving those stakeholders holding some form of "the bag." 

[Conan71]

Bain and its ilk are interesting creatures to me.  They don't directly create jobs (not like the Widget Company, that owns a factory), but they do perform something of a service to the overall economic environment.  That service is to function as something of a digestive enzyme, breaking down companies into constituent parts and passing them along as nutrients (of a sort) back into the economic bloodstream.  

Sorta.  I guess.  My point is that what they do certainly isn't illegal, and serves some function to the economy at large, but it also can be predatory.  If Bain takes an ailing company and turns it around for a profit, good on them.  If Bain takes a fully functioning company and decides it's worth more -- to Bain -- in pieces rather than as a complete unit, then bad on them.   In that case, Bain is a job destroyer and a net negative (IMO). The unfortunate part, to me, is that they are wholly unrelated to the primary product or management of a given company.  They judge a target solely as a series of entries on a ledger, rather than from a more holistic standpoint (holistic = as an employer, a producer, a part of a given community -- city, state, otherwise).  This makes some people money (primarily Bain stakeholders) but again is unrelated to actual target company itself, more than likely leaving those stakeholders holding some form of "the bag."  

Bain is really no different than how a bank helps create jobs via investment and lending.  It's not that strange an animal.  One function they serve is to provide capital to those who otherwise might not be able to attract investment or loans to expand or survive.

Any business can be predatory.  Big box stores are a classic example.  They move into an area and underprice the local mom and pops and smaller regional outfits and run them out of business.  In the process though, they usually end up providing more net jobs and benefits than the smaller retail operations were able to.  They provide more retail, transportation, and service industry jobs as well as good paying mid level and high level management positions.  Their net negative is their emphasis on cheap prices has forced production of many of the goods they sell overseas to cheaper labor markets so the goods they sell are in many cases even cheaper than they were 10-20 years ago.

Certainly there are some businesses which end up being parted out, physical assets sold off, and jobs lost after being bought by a private equity firm.  The parceling out part doesn't always mean shutting down factories.  There are instances where units are parceled out from a parent corporation and there's no loss of employment when they are bought by another company from a PE firm.  

You need to be careful what you digest about PE and VC firms, that's going to be the target on Romney's back and I can assure you there will be plenty of misinformation spewed forth to make Romney look like an evil job killer.

[Conan71]

Bain was not a VC firm. VC firms invest near the beginning. Bain is a private equity firm. They're the sort that buy up and (often) part out businesses. There have been a long line of profitable businesses bought up and run into the ground by PE firms. Since they're just after the assets, they don't give a smile about the long term viability of the business.

You might want to cite something other than talking points before you make claims about what Bain does and doesn't do.

From the Bain Capital website:

Established in 1984, Bain Capital is one of the world's leading private investment firms managing approximately $60 billion in assets under management. Our affiliated advisors make private equity, public equity, leveraged debt asset, venture capital, and absolute return investments across multiple sectors, industries, and asset classes. Since our inception, our competitive advantage has been grounded in a people-intensive, value-added investment approach that has enabled the firm to deliver industry-leading returns for our investors.

http://www.baincapital.com/AboutBainCapital/Default.aspx

[nathanm]

You might want to cite something other than talking points before you make claims about what Bain does and doesn't do.

A VC firm might have some equity investments in public companies, but that doesn't make them a hedge fund.

[heironymouspasparagus]

More literary exaggeration?  Your credibility is pretty thin, at least with me on this type of subject.

There is no need whatsoever to let my thoughts have any weight on these four.  It is something that you can investigate/research/study on your own with a little bit of effort.  Berkshire is the easiest - go read all their annual reports for the last 14 million years or so (now THAT is a literary exaggeration!) and Buffet is very up front about what is going on.  Plus there are probably a dozen or more books about him and his methods out there.

Bain is probably the second easiest.  Hey, they made Staples!!  That was easy....

Cerberus is tougher.  Ya gotta dig and it seems to be mostly through news articles and company propaganda.  Blackstone (BX) should be easier.

[heironymouspasparagus]

Bain and its ilk are interesting creatures to me.  They don't directly create jobs (not like the Widget Company, that owns a factory), but they do perform something of a service to the overall economic environment. 

Sorta.  I guess.  My point is that what they do certainly isn't illegal, and serves some function to the economy at large, but it also can be predatory.  If Bain takes an ailing company and turns it around for a profit, good on them.  If Bain takes a fully functioning company and decides it's worth more -- to Bain -- in pieces rather than as a complete unit, then bad on them.   In that case, Bain is a job destroyer and a net negative (IMO). The unfortunate part, to me, is that they are wholly unrelated to the primary product or management of a given company.  They judge a target solely as a series of entries on a ledger, rather than from a more holistic standpoint (holistic = as an employer, a producer, a part of a given community -- city, state, otherwise).  This makes some people money (primarily Bain stakeholders) but again is unrelated to actual target company itself, more than likely leaving those stakeholders holding some form of "the bag." 

Can be predatory, but look here - interesting list of some of what they own or have owned;

http://en.wikipedia.org/wiki/Bain_Capital

[Conan71]

Can be predatory, but look here - interesting list of some of what they own or have owned;

http://en.wikipedia.org/wiki/Bain_Capital

Reading that article, they don't sound too dooshy, now do they?

[Conan71]

This article states that what Berkshire and Bain both do is the same thing.  Make no mistake, Berkshire is every bit as worried about pleasing shareholders as Bain is.

Buffett the "Good" Capitalist?
There has been a media uproar about Mitt Romney and Bain Capital and how evil private equity firms, like Bain Capital are and how they "prey" upon other companies that are less fortunate. The media and others are claiming that Bain destroyed jobs and businesses and represent evil bad capitalists. Yet Warren Buffett and Berkshire Hathaway are heralded as the epitome of "good" capitalists, even though there is no difference between what Buffett's job is with Berkshire and what Romney's job was with Bain.

It is this utter simplistic ignorance with which people haphazardly wonder through life reeking intellectual havoc that creates controversy where there is none. Unfortunately, those talking about private equity are either intentionally lying to you, such as the case with Newt Gingrich or they have absolutely no clue as to what a private equity fund does within the scope of the financial services industry, such as the case is with Barrack Obama.

The question is not some quaint socialistic concept about a business' responsibility to society in creating jobs. It is instead the fundamental capitalistic Darwinian proposition of whether or not private equity companies created value for the shareholders. Because if they are creating value for their shareholders, then definition they are also creating value for society.

Many claim that private equity firms are evil Wall Street companies when in fact the vast majority of private equity firms are not located at Wall and Broad. Instead they are located all over the country in places such as Wyoming, Florida, California, Nebraska, and offshore in countries like the Caymans or the British Virgin Islands.

Private equity are the cowboys that risk capital to build or rebuild companies. And by doing so they often times create jobs. In fact, without private equity there would be approximately 60 to 70 percent fewer jobs created every year. Furthermore, there would be virtually no new companies created. Therefore, there would be no competition and in short there would be no capitalism.

Private equity covers a broad spectrum of different types of companies and investors. Types of private equity groups are hedge funds, venture capital groups, angel investors, and family offices. Within each of these groups there are a variety of business models. All private equity funds exist to invest money, make profits and protect capital for clients

The hedge fund manages the money and invests their client's money based on their business model. Some hedge funds are created to invest in other hedge funds. These companies focus on buying stocks and bonds or commodities. They may focus on large cap blue chip stocks only or diversify into acquiring extremely well managed profitable medium and small cap companies. Some may focus on growth companies, while others seek value or companies that have been beaten up or that may be takeover targets in mergers and acquisitions (M&A). And still some hedge funds may be M&A funds that buyout distressed properties.

The venture capital (VC) groups are those that invest in startup companies. These guys take big risks to fund a company that banks will not fund. Between 60 to 70 percent of American jobs are created by entrepreneurs starting their own businesses and it is the VCs that take the risk and fund these companies. Some firms only invest in technology while others only invest in commodity type companies. Like hedge funds these guys invest other people's money.

Then there are the angel investors who are responsible for providing the seed capital to startup companies in order to get them to the next level of funding with a VC or hedge fund. These are wealthy investors that invest their own money into companies. Angels must be "accredited" investors meaning they have at least $1 million in assets excluding their home and make $300,000 per year.

The Family Office is another type of private equity firm, which consists of a single or group of extremely wealthy families, such as the Rockefeller and Kennedy families. These investors generally consist of old family money, but are no longer in business and the only way they continue to protect and increase their wealth is through investing.

As stated earlier there are a variety of private equity fund types and each has a specific area of expertise, business model and function within the capital funding process. The darling investor adored by almost everyone (except me) is Warren Buffett who heads the private equity fund Berkshire Hathaway and then there is of course Bain Capital.

The difference between the two business models provides an interesting dichotomy. Berkshire is viewed as the good and moral capitalistic private equity fund, while Bain is perceived as the evil morally bankrupt "vulture" capital firm, at least as Newt Gingrich would have you believe.

Analyzing these two business models, coupled with the two men that ran Berkshire and Bain brings about many questions. The first of which is whether or not either business model is more or less moral than the other? Should Warren Buffett to be revered as a savior and portrayed as the model "good" capitalist any more than any other private equity guy? Isn't Warren Buffett's business model the same as all the others when it comes down to the final analysis -- he makes money for his investors? And if this is case, then isn't Buffett as evil and greedy as all the others? Or instead, are all the other private equity guys simply good moral capitalists like Buffett?

Two Opposing Private Equity Capitalist Business Models

To begin with Buffett only invests in companies that he understands. His other criteria are that they be well managed and very profitable. Buffett also invests in the big blue chip companies like Coca Cola and his primary industries are insurance and banking. Furthermore, Berkshire does not invest in startup companies, distressed companies (unless the distressed company is a large blue chip company that Buffett has inside information on coupled with a taxpayer funded backstop).

Buffett therefore, does not invest in companies that create jobs he invests in companies that already have created jobs. He makes extremely large profits because the companies he buys are the best companies in the industry with great cash flow, no debt, as well as having abundant assets and cash on the balance sheet. This allows him to strip out cash.

Also Buffett has never invested in a technology company in his history, that was until recently when he invested in IBM. Although IBM is more of a technology services company than a tech company like Cisco, Compaq, Motorola or Intel who actually manufacture tech products.

Therefore, it was companies like Bain that were responsible for all the technology capital investment that generated hundreds of thousands of jobs, built fortunes, created companies that went public which permitted pensions, mutual funds and 401k managers to invest in and build the retirement savings for people to retire. It also produced innovation throughout the world over the past 30 years that enhanced the productivity of existing companies and spawned new industries. However, Berkshire did provide the insurance to insure tech workers, and the banks where the tech employees opened bank accounts and the coke they drank while working all night writing code and creating new products.

http://lionsdenmedia.hubpages.com/hub/How-Private-Equity-Firms-Like-Bain-Capital-Berkshire-Hathaway-Make-Money

[nathanm]

No, it's Silicon Valley VC firms that provided startup funding for thousands of high tech companies. They don't buy companies outright like PE firms do. They invest, sometimes getting a seat on the board in return, but rarely do they have control of management.

Weird that people are trying to equate PE firms like Cerberus or Carlyle Group with angel investors and VC firms. Oh wait, of course it's not weird. They're trying to associate themselves with those who are actually economically useful. Apparently they're having some success at muddying the waters.

And at least between Berkshire and Bain there is a qualitative difference: Berkshire buys and holds for a long period. Bain buys and sells within a few years. (generally. obviously there are exceptions)

[Hoss]

No, it's Silicon Valley VC firms that provided startup funding for thousands of high tech companies. They don't buy companies outright like PE firms do. They invest, sometimes getting a seat on the board in return, but rarely do they have control of management.

Weird that people are trying to equate PE firms like Cerberus or Carlyle Group with angel investors and VC firms. Oh wait, of course it's not weird. They're trying to associate themselves with those who are actually economically useful. Apparently they're having some success at muddying the waters.

And at least between Berkshire and Bain there is a qualitative difference: Berkshire buys and holds for a long period. Bain buys and sells within a few years. (generally. obviously there are exceptions)

Yep, Carlyle bought us.  Then sold us...

[Conan71]

No, it's Silicon Valley VC firms that provided startup funding for thousands of high tech companies. They don't buy companies outright like PE firms do. They invest, sometimes getting a seat on the board in return, but rarely do they have control of management.

Weird that people are trying to equate PE firms like Cerberus or Carlyle Group with angel investors and VC firms. Oh wait, of course it's not weird. They're trying to associate themselves with those who are actually economically useful. Apparently they're having some success at muddying the waters.

And at least between Berkshire and Bain there is a qualitative difference: Berkshire buys and holds for a long period. Bain buys and sells within a few years. (generally. obviously there are exceptions)

Obviously, a PE would add some sort of perceived or actual value (i.e. better management structure implemented after the purchase) otherwise they could not sell off a company at a profit.

[nathanm]

Obviously, a PE would add some sort of perceived or actual value (i.e. better management structure implemented after the purchase) otherwise they could not sell off a company at a profit.

Perceived being the key word in most cases. Oftentimes it's a matter of the assets being worth more than the company as a going concern, even when the company is at least somewhat profitable. At one time it wasn't uncommon to see profit-making factories here in the US shut down in favor of selling the equipment to Chinese companies because doing so is a big wad of cash now rather than a steady stream of cash over many years. In most cases, there were PE firms standing in the middle. From their perspective, it makes perfect sense to double their money in a few months rather than take the income stream.

I guess you can call that creating value. It seems to me that it's more like appropriating value from workers and communities and selling it to China. I'm not saying they don't or shouldn't have the legal right to do it, but that doesn't mean it's not objectionable.

[Conan71]

Perceived being the key word in most cases. Oftentimes it's a matter of the assets being worth more than the company as a going concern, even when the company is at least somewhat profitable. At one time it wasn't uncommon to see profit-making factories here in the US shut down in favor of selling the equipment to Chinese companies because doing so is a big wad of cash now rather than a steady stream of cash over many years. In most cases, there were PE firms standing in the middle. From their perspective, it makes perfect sense to double their money in a few months rather than take the income stream.

I guess you can call that creating value. It seems to me that it's more like appropriating value from workers and communities and selling it to China. I'm not saying they don't or shouldn't have the legal right to do it, but that doesn't mean it's not objectionable.

Look at it this way.  There's far fewer opportunities to sell that equipment to India or China these days since most of the equipment is over there.

Back to Bain, have they exhibited a track record of parcelling physical assets in this manner?