Asset strippers. Corporate looters. Locusts. Barbarians. The media has always had contempt for titans of private equity, even if its attempts to vilify them sometimes ended up lionizing them instead. In fact, as portrayed by Michael Douglas in the '80s, ersatz buyout artist (and market manipulator) Gordon Gekko attracted more aspiring M.B.A.s to the business than Henry Kravis. Still, for most of the press, private equity has long been a sinister and unfathomable enterprise, an impression informed mostly by a passing familiarity with that Gekko-era artifact, "Barbarians at the Gate," and reinforced by Steve Schwarzman and his penchant for birthday bashes and silently shod servants.
It's a cartoon view of the industry, based not on real analysis of the thousands of deals done over 40 years, but on characters and caricatures. And it's just as distorted as the one pushed by Mitt Romney that presents private equity bigwigs as management magicians who play the game to create jobs. Now, with Romney on his way to becoming the GOP nominee, the press -- egged on first by the left, then by Newt Gingrich -- has been in overdrive trying to figure out what to make of Romney's Bain Capital past.
The coverage is right out of Looney Tunes. The New York Times' Maureen Dowd calls Romney "a Wall Street predator, looter and vulture gnawing at the carcasses of companies." The Financial Times' Edward Luce notes Romney's "asset-stripping career as a financial engineer." Columbia Journalism Review's The Audit cheers the fact that the Times carried news of Gingrich's super-PAC's private equity attack ad on page one -- "I thought it was overkill at first," the Audit says, "but this deserves it."
The Audit was also pleased to see The Wall Street Journal publish a page-one piece -- one of three front pagers on Romney and private equity the week of the New Hampshire primary -- examining the 77 investments Bain made during his tenure. A straightforward analysis, the story warned that its findings "could provide fodder for both critics and supporters of Mr. Romney's presidential ambitions and of his role at Bain." While the WSJ found that Bain's investments went belly-up at a quicker pace than those of other firms -- 22% were bankrupt or shuttered within eight years of Bain's involvement -- it also noted the firm invested in riskier companies. Bain also scored some very big wins.
No matter. For many, that 22% was as scandalous as a stained dress from the Gap. "Romney's Bain Capital Made Billions While Bankrupting Nearly One-Quarter of the Companies It Invested In," blared a headline at Think Progress. Stories about Bain profits from those bankrupt companies -- and their laid-off workers -- became popular, including Reuters' look at Worldwide Grinding Systems, or, as the headline called it, "Romney's steel skeleton in the Bain closet."
On the other side, the WSJ's editorial page cited the 22% as proof that "private equity helps to promote dynamic capitalism that creates wealth, rather than dinosaur capitalism of the kind that prevails in Europe and futilely tries to prevent failure." Bain disputed the figure, noting that some companies went under after the firm had cashed out. But it all seemed so beside the point. Do bankruptcy rates and layoff stories really tell us if private equity is good or evil?
Proclaiming private equity to be sinister is as mindless as declaring that all deals, whether they're LBOs or strategic acquisitions, are bad -- a media meme that never seems to abate. True, not all deals work out and some are downright disastrous. But those who would eschew all dealmaking never stop to consider the alternative: What would a world without deals look like? How would businesses grow? Where would middle-market companies, both healthy and distressed, turn if they couldn't tap private equity? Can we assume that the Bain 22% would have fared better if left alone?
This isn't to say there aren't serious questions around private equity, such as the debt it may lay on companies, the fees its managers collect and, most controversial of all, the fact that those fees are "carried interest" and taxed at a much lower rate than ordinary income. Oddly, taxes and fees have been largely absent from the raucous debate (though not Romney's personal taxes). Nobody, least of all Gingrich, wants to think about taxes when they're watching this cartoon. Some things are sacred.