Who is Bain Capital?
Headquartered in Boston, Bain Capital is known in the corporate buyout world for charging higher carried interest than average-30 percent rather than the standard 20 percent. Overall, its total assets under management were valued at $40 billion in 2007.
Read more about Bain Capital at BehindTheBuyouts.org.
Will our child care go the way of KB Toys?
KB Toys went bankrupt less than four years after being bought by Bain Capital, shutting down hundreds of stores and laying off thousands of employees, yet Bain Capital got a reported $85 million return on its $18 million investment. Not only did the initial buyout include $237 million in debt, but the company went even further into debt to fund a “dividend recapitalization”—approximately $121 million in payments to Bain Capital and KB Toys executives.
The Wall Street Journal’s Deal Journal describes dividend recapitalization:
“Under this procedure, a buyout firm’s portfolio company takes on additional debt, which it then uses to pay its buyout sponsor a dividend. That allows the buyout firm to take some of the risk of its equity investment off the table, while still owning the company—a win-win situation if there ever was one. Critics frown on these transactions, which they say needlessly burdens companies with debt without giving them any cash to finance their operations.”
Neil Weinberg and Nathan Vardi wrote in Forbes in March 2006:
“In one get-rich-quick scheme, a dividend recap let Bain Capital turn an $18 million stake in faltering KB Toys into $85 million in cash—but left KB itself in much weaker shape. Bain put up $18 million and took on $237 million in debt to buy the company in December 2000. In April 2002 KB raised $66 million more in bank debt and used cash on hand to pay out $121 million in special dividends—$85 million for Bain and $36 million for senior executives who signed off on the recap. But KB went on to lose $109 million in less than two years, creditors say, filing for Chapter 11 protection in January 2004. Since then it has shut half of its 1,200 stores and laid off more than half of its 16,000 employees.”