Romney was restless for a company of his own to run, and in 1983, Bill Bain offered him the chance to head a new venture that would buy into companies, have them benefit from Bain techniques, and then reap higher rewards than consulting fees.[52][59] He initially refrained from accepting the offer, and Bain re-arranged the terms in a complicated partnership structure so that there was no financial or professional risk to Romney.[52][62][66] Thus, in 1984, Romney left Bain & Company to co-found the spin-off private equity investment firm, Bain Capital.[64] In the face of skepticism from potential investors, Bain and Romney spent a year raising the $37 million in funds needed to start the new operation, which had fewer than ten employees.[56][62][67] As general partner of the new firm, Romney spent little money on costs such as office appearance, and saw weak spots in so many potential deals that by 1986, few had been done.[52] At first, Bain Capital focused on venture capital opportunities.[52] Their first big success was a 1986 investment to help start Staples Inc., after founder Thomas G. Stemberg convinced Romney of the market size for office supplies and Romney convinced others; Bain Capital eventually reaped a nearly sevenfold return on its investment, and Romney sat on the Staples board of directors for over a decade.[52][67][68]
Romney soon switched Bain Capital's focus from startups to the relatively new business of leveraged buyouts: buying existing firms with money mostly borrowed against their assets, partnering with existing management to apply the "Bain way" to their operations (rather than the hostile takeovers practiced in other leverage buyout scenarios), and selling them off in a few years.[52][62] Existing CEOs were offered large equity stakes in the process, owing to Bain Capital's belief in the emerging agency theory that CEOs should be bound to maximizing shareholder value rather than other goals.[68] Bain Capital lost most of its money in many of its early leveraged buyouts, but then started finding deals that made large returns.[52] The firm invested in or acquired Accuride, Brookstone, Domino's Pizza, Sealy Corporation, Sports Authority, and Artisan Entertainment, as well as lesser-known companies in the industrial and medical sectors.[52][62][69] He ran Bain Capital for fourteen years, during which time the firm's average annual internal rate of return on realized investments was 113 percent.[56] Much of this profit was earned from a relatively small number of deals; Bain Capital's overall success–to–failure ratio was about even.[nb 8]
Romney discovered few investment opportunities himself, instead focusing on analyzing the merits of possible deals that others brought forward and recruiting investors to participate in them once approved.[71] The firm initially gave a cut of its profits to Bain & Company, but Romney persuaded Bain to give that up.[66] Within Bain Capital, Romney spread profits from deals widely within the firm to keep people motivated, often keeping less than ten percent for himself.[72] Viewed as a fair manager, he received considerable loyalty from the firm's members.[68] Romney's wary instincts were still in force at times, and he was generally data-driven and averse to risk.[52][68] He wanted to drop a Bain Capital hedge fund that initially lost money, but other partners prevailed and it eventually gained billions.[52] He also personally opted out of the Artisan Entertainment deal, not wanting to profit from a studio that produced R-rated films.[52] Romney was on the board of directors of Damon Corporation, a medical testing company later found guilty of defrauding the government; Bain Capital tripled its investment before selling off the company, and the fraud was discovered by the new owners (Romney was never implicated).[52] In some cases, Romney had little involvement with a company once acquired.[67]
"Sometimes the medicine is a little bitter but it is necessary to save the life of the patient. My job was to try and make the enterprise successful, and in my view the best security a family can have is that the business they work for is strong."
—Mitt Romney in 2007, commenting on job losses at companies that Bain Capital executed leveraged buyouts of.[66]
Bain Capital's leveraged buyouts sometimes led to layoffs, either soon after acquisition or later after the firm had left.[59][66][67] How jobs added compared to those lost due to these investments and buyouts is unknown, due to a lack of records and Bain Capital's penchant for privacy on behalf of itself and its investors.[73][74][75] In any case, maximizing the value of acquired companies and the return to Bain's investors, not job creation, was the firm's fundamental goal, as it was for most private equity operations.[67][76] Bain Capital's acquisition of Ampad exemplified a deal where it profited handsomely from early payments and management fees, even though the subject company itself ended up going into bankruptcy.[52][68][76] Dade Behring was another case where Bain Capital received an eightfold return on its investment, but the company itself was saddled with debt and laid off over a thousand employees before Bain Capital exited (the company subsequently went into bankruptcy, with more layoffs, before recovering and prospering).[73] Bain was among the private equity firms that took the most fees in such cases.[62][68]
In 1990, Romney was asked to return to Bain & Company, which was facing financial collapse.[64] He was announced as its new CEO in January 1991[77][78] but drew only a symbolic salary of one dollar.[64] He managed an effort to restructure the firm's employee stock-ownership plan, real-estate deals and bank loans, while rallying the firm's thousand employees, imposing a new governing structure that included Bain and the other founding partners giving up control, and increasing fiscal transparency.[52][56][64] Within about a year, he had led Bain & Company through a turnaround and returned the firm to profitability without further layoffs or partner defections.[56] He turned Bain & Company over to new leadership and returned to Bain Capital in December 1992.[52][78][79]
Romney stated that he was taking a leave of absence from Bain Capital in February 1999 to serve as the President and CEO of the 2002 Salt Lake City Olympic Games Organizing Committee.[52][80] According to an interview Romney gave to the Boston Herald in 1999, Romney said he would stay on part-time at Bain, but would leave running day-to-day operations to Bain's executive committee.[81] During his leave of absence, Romney continued to be listed in filings to the U.S. Securities and Exchange Commission[82] as "sole shareholder, sole director, Chief Executive Officer and President".[83][84] In 2012 former Bain colleagues reported that Romney had no involvement with Bain after his departure to run the 2002 Olympics. [85]
By that time, Bain Capital was on its way to being one of the top private equity firms in the nation,[66] having increased its number of partners from 5 to 18, with 115 employees overall, and $4 billion under its management.[62][67] Bain Capital's approach of applying consulting expertise to the companies it invested in became widely copied within the private equity industry.[24][67] Economist Steven Kaplan would later say, "[Romney] came up with a model that was very successful and very innovative and that now everybody uses."[68]
In August 2001, Romney announced that he would not return to Bain Capital.[80] His separation from the firm was finalized in 2002;[86] he transferred his ownership to other partners and negotiated an agreement that allowed him to receive a passive profit share as a retired partner in some Bain Capital entities, including buyout and investment funds.[72][87] Because the private equity business continued to thrive, this deal brought him millions of dollars in annual income.[72]
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