msnbc | May 23, 2012
>>> it's taken center stage in the presidential stage in recent days. while our new nbc news/" wall street journal " poll shows voters like romney's business background, only 9% view the company where he got that experience positively. 19% have this negative view. however, the vast majority are either neutral or unsure about whether bain is good or bad. joining me to discuss that issue is josh kozman. also joining us is university of maryland business school professor, peter mauricee. good to see you both. i want to start with you, peter. this all goes back to the republican debates with rick perry , newt gingrich slamming mitt romney for, quote, the vulture capitalism. are private equity firms really vultures?
>> i don't believe so. a lot of private firms are in need of a shaping up. and private equity can serve that purpose. i don't know that we want to characterize companies that essentially take companies that are in bad shape , reform their management and make them competitive again as vultures. have there been abuses? of course there have. but there have also been abuses at our major banks and in american business and the public sector.
>> josh, do private equity firms like bain actually build up businesses and are they job creators or are they something else? is the main goal about profit and giving the uberrich investors you have money back?
>> the problem is they buy profitable businesses. these are businesses that borrow money to finance their takeovers. these are leveraged buyouts . and in the work i did on my book, i showed 52% of the 25 biggest buyouts in the 1980s , 52% of those companies ended up collapsing. i took a look at the '90s, took a look at the top ten deals. six of those ten cases, the lbo hurt the company. three case, it's mixed. in one case, it helped the business. in this decade, four of the ten biggest companies acquired in lbos are distressed. so i think the record is clear. it's a destructive activity.
>> here's what south carolina democratic congressman james clyburn had to say yesterday about firms like bain .
>> there's something about that enterprise that i have a problem with. and there's something about raping companies and leaving them in debt and setting up swiss bank accounts and corporate businesses in the grand caymans.
>> explain to us while the congressman there is talking about something that mitt romney does having a swiss bank account and obviously that's money that he may have made from bain or not. don't private equity -owned firms, they often collapse, they don't always make it, correct?
>> if they make enough bad bets, they will collapse. even if you're betting a lot of the bank's money, you're still betting some of your own and if you don't do it right. but whether or not mr. romney has a swiss bank account is separate from whether private equity serves a useful purpose. i don't know that we want to outlaw it. i'm not surprised that most of the deals don't work out, if the other guest is correct, essentially most of the time, they're buying companies that are high risk in some way, not very well-managed and they need a lot of shaping up. there are success stories, lots of them. hurts, stapl hertz, staples, dominos and other smaller companies that do work out. and this is a useful purpose in capitalism.
>> let's talk about the group private equity growth capital council. it's pushing back. peter, you say there are positives to talk about what an equity firm can do. but they're talking specifically about how it transformed axle tech with the investment that it made from a regional manufacturer into a world's leading supplier of specialty axles to the u.s. military . josh, don't private equity firms fit right into the model that is cat lichl capitalism in this country? as peter points out, there are these examples where the bets work.
>> i respectfully disagree with peter. what mitt romney and maybe he's hiding behind is he brings up venture capital investments. private equity is leveraged buyouts . leveraged buyouts are profitable companies. all the five company that is mitt romney 's bain bankrupted and made $550 million profit on that are now being profiled in the obama ads like ampad and g.s. steel, these were profitable companies. they were put in debt and then cut costs and over the long run, that activity has an impact because you're starving a company of capital.
>> gentlemen, thanks for your time this morning.