As Mitt Romney showed last week in Florida’s Republican primary, he was willing to get into a bare-knuckle political brawl, swamping rival Newt Gingrich with thousands of negative ads.
The rough-and-tumble world of politics may not be all that different from the hard-nosed business world where the former Bain Capital executive learned to operate, an examination of some Georgia deals and buyout attempts shows. Romney co-founded the Boston firm, one of the nation’s largest private equity firms, in 1984.
One local takeover effort by Bain Capital erupted in a boardroom battle and lawsuits. In another deal, the private equity firm backed a company that slashed about 1,000 jobs after taking over rivals.
Bain Capital’s local investment efforts include at least a half-dozen takeover attempts or other deals over the past two decades.
During Romney’s tenure as chief executive (from 1984-1991 and again from 1992-1999), a Bain-owned company tried unsuccessfully in 1996 to buy a prominent Atlanta engineering firm, Law Companies. Bain Capital also backed out of a 1996 deal to buy Dun & Bradstreet’s Atlanta business software unit.
A spokeswoman for Bain Capital said she was not aware of any other Atlanta-area deals during Romney’s tenure.
Through later deals, after Romney left the helm, Bain Capital bought ownership stakes in at least four other metro Atlanta companies. They include The Weather Channel; specialty credit card firm FleetCor; Home Depot’s former wholesale arm, HD Supply; and Cumulus Media, the nation’s second-largest radio broadcaster in terms of stations.
Typically, private equity firms such as Bain Capital try to make big profits in the high-risk deals by turning around troubled firms and later reselling them. The firm, which sprung from the Boston-based consulting firm Bain & Co., is said to have pioneered the technique of tapping its consulting expertise to help coach management at the companies it invests in.
But in some of the more recent deals, Bain Capital seems to be taking a less aggressive role as a minority investor in companies that don’t appear to be in trouble.
Through a deal announced last week, for instance, Bain Capital is set to gain a toehold in the media company owned by “American Idol” host and former Dunwoody resident Ryan Seacrest. Clear Channel Media, in which Bain Capital has a major stake, said it plans to invest $300 million as a minority partner in Ryan Seacrest Media.
Romney’s role at Bain Capital, his large income that is still tied to the firm and his tax payments have been hotly debated during the presidential campaign.
Romney has said the firm he headed created many thousands of jobs. But critics have called Bain Capital a corporate raider that reaped huge profits while the firms it bought cut thousands of jobs and in some cases became crippled or later failed.
Some recent academic studies indicate that the effects of private equity firms such as Bain Capital are somewhere in the middle of such claims. Private equity firms often produce outsized returns for their investors — typically pension funds and college endowments — but also lead to somewhat smaller overall employment, as some turnaround firms thrive and others shrink or die, researchers say.
The effects of Bain Capital’s local deals and takeover efforts differ from case to case.
Not surprisingly, Bain’s dealmakers came knocking at some companies that already were in trouble. Some of those disappeared or were acquired by other firms, without Bain ultimately being involved.
In the case of Law Companies Group, whose shares were largely owned by employees and retirees, a takeover deal in 1996 — when Romney was CEO — started out friendly. Law Companies, which was short on cash, initially accepted a buyout by a Bain-owned firm.
But the deal fell through. A few months later, in 1997, Law Companies got a $10 million offer for about a third of the firm from another well-connected metro Atlanta engineering firm owned by then-Gov. Zell Miller’s former chief of staff, Virgil Williams, and his brother.
Bain Capital’s company came back with a $28.5 million offer for the whole firm, then upped it to $38 million.
Law Companies stockholders sued to block the Williams brothers’ deal, but the judge allowed it. The Williams brothers bought their stake in Law Companies, which also sued Bain Capital’s firm.
Four year later, a Colorado firm bought Law Companies for $84 million, netting a big profit for the Williams brothers. The Colorado firm in turn was absorbed last year by a British company.
Other local investments by Bain Capital have involved companies that are in industries that were rapidly consolidating under pressure from falling revenues and changing technologies.
In the case of Atlanta-based Cumulus Media, ongoing job-cutting and heavy losses deepened after Bain Capital became an investor.
In a $1.2 billion deal in 2006 — when Romney was no longer CEO — the radio company, Bain Capital and two other private equity firms were equal partners in a joint venture that acquired the radio business of Susquehanna Pfaltzgraff Co., in York, Pa.
The deal added 33 stations to Cumulus’ network, boosting it to 345 stations, including alternative rock station 99X and Top 40 station Q100 in Atlanta.
Cumulus CEO Lew Dickey said in an interview last week that he turned to Bain and the other partners because they offered a better deal than if he had sold more stock in the public market.
Bain Capital was “both commercial and constructive,” he said. “They were sort of there when I needed them.”
At the time of the deal, Dickey called Susquehanna “one of the radio industry’s most admired companies,” and said he looked forward to “partnering with management and employees.” The deal, he said, would allow shareholders “to benefit from the next wave of industry consolidation.”
Instead, in the wake of the deep 2007-2009 recession, Cumulus’s stock has plunged more than 70 percent over the past six years. Cumulus lost $970 million from 2005 to 2009, and the company shed a third of its employees, dropping from 3,392 to 2,255 during that time.
Industry experts, Dickey and former employees say the recession and rising competition from iPods, satellite radio and other technology were partly to blame for a big drop in revenue that led to falling employment and consolidation in the radio industry, including budget and staff cuts at Cumulus.
“Obviously, it got challenging when radio revenues dropped” from about $21.7 billion nationwide in 2006 to $17.3 billion in 2010, said Barrington Research Associates analyst James Goss, citing figures from the Radio Advertising Bureau.
“That was something that all companies did,” Dickey said of the retrenchment during the recession. “That had nothing to do with private equity.”
But some former Susquehanna employees said Cumulus is well known for cutting jobs and using automation to produce and broadcast programming with fewer and lower-paid employees.
For instance, Cumulus boosted the use of so-called “voice tracking,” some former employees said, in which radio hosts pre-record comments that can be used later between songs on the company’s other radio stations.
“When the economy took a downturn, [Cumulus] really had to look at, ‘How can we make some cuts,’ ” said Kenny Burgamy, who left Cumulus’ radio stations in Macon in 2007. Through voice tracking, “per station you could probably save $60,000 or $100,000,” and more at bigger stations, said Burgamy.
At an investor conference about three weeks ago, Cumulus Chief Financial Officer Joseph Hannan touted the company’s ability to “wholesale re-engineer the way these operations work” in order to squeeze out costs.
The company learned that process while running its joint venture with the private equity firms, Hannan told investors. By 2009, he said, the company had lopped off about $70 million in operating costs through such moves.
Such moves have become essential, said Dickey. With the advent of the Internet, all old-line media companies have become “inherently inefficient,” he said. “We run the business as efficiently as technology permits us to do.”
Still, that did not prevent Bain Capital and the other joint venture partners from losing money in their Cumulus deal. Early last year, Cumulus bought out its private equity partners in the joint venture. The value of the deal had dropped 38 percent in the meantime, and so far, its partners have taken a big hit. Bain Capital and the other equity partners each got Cumulus stock now worth roughly $12 million. They originally chipped in $80 million each.
These days, Cumulus is again making profits and is in expansion mode.
After a $29.4 million profit in 2010, the company is expected to report roughly a $30 million profit for 2011.
Last year, Cumulus struck a deal with a group of lenders and private equity firms — not including Bain — to bankroll its $2.4 billion acquisition of Las Vegas-based Citadel Broadcasting Corp., boosting its combined network to 570 stations with 7,000 employees.
At the time, Dickey said Citadel employees should expect few changes other than “the name on your paycheck.”
But last month, Hannan, Cumulus’ CFO, told investors the company is wringing about $52 million in cost savings from Citadel’s operations through eliminating “redundancies” and applying Cumulus’ strategies for cutting operating costs.
“We think this is going to be a tremendous [cash] generating company,” Hannan said.
Dickey said Cumulus did end up cutting 200 jobs after the takeover. But he said Cumulus is investing in more productive areas, such as in an online and radio business it rolled out last year, called SweetJack, that promotes daily bargains like Groupon does. That business should grow from 75 employees at Cumulus’ Atlanta headquarters to 200 employees by year-end, he said.
“By the end of the year, we’ll have a net increase in jobs. They’ll be different jobs,” he said. “That’s how business evolves.”
Bain Capital in metro Atlanta
The Boston-based private equity firm co-founded by presidential candidate Mitt Romney has made several attempts to invest in metro Atlanta companies over the years. Here are some past and current deals or attempts.
Year Company Result
1996 Dun & Bradstreet Software Canceled deal; bought by another software company
1996-1997 Law Companies Group Friendly deal turned hostile; Atlanta rival bought stake
2005 FleetCor Currently owns stake
2006 Cumulus Media Currently owns stake
2007 HD Supply Currently owns stake
2008 The Weather Channel Currently owns stake
Source: Bain Capital; staff research
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