Cambridge Industries, an automotive plastics supplier whose losses had been building for three consecutive years, finally filed for bankruptcy in May 2000 under a mountain of debt that had ballooned to more than $300 million. Yet
Bain Capital, the private equity firm that controlled the Michigan-based company, continued to religiously collect its $950,000-a-year advisory fee in quarterly installments, even to the very end, according to court documents.
In all, Bain garnered more than $10 million in fees from Cambridge over five years, including a $2.25 million payment just for buying the company, according to bankruptcy records and filings with the Securities and Exchange Commission. Meanwhile, Bains investors saw their $16 million investment in Cambridge wiped out. That Bain was able to reap revenue from Cambridge, even as it foundered, was hardly unusual. The private equity firm, co-founded and run by
Mitt Romney, held a majority stake in more than 40 United States-based companies from its inception in 1984 to early 1999, when Mr. Romney left Bain to lead the Salt Lake City Olympics. Of those companies, at least seven eventually filed for bankruptcy while Bain remained involved, or shortly afterward, according to a review by The New York Times. In some instances, hundreds of employees lost their jobs. In most of those cases, however, records and interviews suggest that Bain and its executives still found a way to make money.
In four of the seven Bain-owned companies that went bankrupt, Bain investors also profited, amassing more than $400 million in gains before the companies ran aground, The Times found. All four, however, later became mired in debt incurred, at least in part, to repay Bain investors or to carry out a Bain-led acquisition strategy.
In at least three of the seven bankruptcies, however, companies appear to have been made more vulnerable by debt taken on to return money to Bain and its investors in the form of dividends or share redemptions.
That was arguably the case with GS Industries, a troubled Midwest steel manufacturer that Bain acquired in 1993, investing $8.3 million. The private equity firm took steps to modernize the steelmaker. A year later, the company issued $125 million in debt, some of which was used to pay a $33.9 million dividend to Bain, securities filings show.
The private equity firm plowed an additional $16.2 million into the steelmaker, but when the industry experienced a downturn in the late 1990s, the company could not manage its heavy debt. It filed for bankruptcy in 2001, but Bains investors still earned at least $9 million.
Debt from acquisitions, usually part of a roll-up strategy of buying competitors, played a role in at least five of the seven bankruptcies The Times examined. In most of these cases, Bain investors garnered some initial gains before the companies faltered.
For example, after Bain acquired Ampad, a paper products company, in 1992, the company grew through a series of acquisitions. Sales jumped, but its debt climbed to nearly $400 million, and it found itself squeezed by big box office retailers. It filed for bankruptcy in 2000. Bain and its investors walked away with a profit of more than $100 million on their $5 million investment, on top of at least $17 million in fees for Bain itself, according to securities filings and investor prospectuses.
A similar phenomenon unfolded with DDi, a Bain-owned circuit board maker that expanded aggressively in the late 1990s. Sales soared, but so did its debt. The bursting of the tech bubble forced it to scale back. It filed for bankruptcy in 2003. The gains for Bains investors easily exceeded $100 million. Bain also collected more than $10 million in fees
