Private equity is a controversial and perhaps disreputable business to work in. That’s the message that seems to animate today’s front page New York Times article about Republican presidential hopeful Mitt Romney. The story tells the story of how Romney wound up as the founder of Bain Capital, and how he made a fortune in the leveraged finance business. By all accounts he was fantastic at the job—great at convincing business owners to sell, bankers to lend money, and investors to hand over funds for management.
But we can’t escape the impression that the Times article—written by political reporter David D. Kirkpatrick—is suggesting that there is something at least a little bit dirty about leveraged buyouts and private equity firms. There’s the implication that running a private equity firm isn’t like running a business. It’s more like being some sort of super salesman, or maybe even being a politician, the article says. And we cannot help but think that a little bit of editing by someone in the business section might have made this description of leveraged buyouts a little less contentious:
He made his money mainly through leveraged buyouts — essentially, mortgaging companies to take them over in the hope of reselling them at big profits in just a few years. It is a bare-knuckle form of investing that is in the spotlight because of the exploding profits of buyout giants like Bain, Blackstone and the Carlyle Group. In Washington, Congress is considering ending a legal quirk that lets fund managers escape much of the income tax on their earnings.
As far as it goes, that seems accurate. But it doesn’t go far enough. It leaves out the fact that buyouts typically involve purchasing all the outstanding shares of a company, delivering shareholders a premium above the market price. And it paints those in the private equity business as especially greedy, twice mentioning profits—“big profits” and “exploding profits”—and implying that fund managers are tax dodgers. (Even the phrase “mortgaging companies” is a bit loaded coming so soon after the public has heard about the subprime mortgage meltdown.)
We don’t spend too much time with the A Section of the New York Times. This story was a good reminder of why that is.
Romney’s Fortunes Tied to Business Riches [New York Times]