David Wren’s expose on Bain Capital’s profit-making off their Georgetown Steel investment was true, they made profits. It was also grossly unfair in its tenor and selection of sources.
In 1993 Bain Capital was approached for financing and/or investment by management of Armco Worldwide, a Kansas City steelmaker looking to execute a management-led buyout of the 100-year old company. Bain invested approximately $24.5 million in the company, which was renamed GS Technologies. The following year, GST issued $125 million in new general obligation bonds, which repaid Bain’s investment with a profit of $10.9 million, while $90 million from the bond sale was invested in the company.
Also in 1994, Bain invested $18.2 million in the “start-up of a new steel manufacturing company” in Fort Wayne, Ind., called Steel Dynamics that today is one of the industry leaders in revenue growth. Today that firm reports $8 billion in revenue, more than 30 times the $252.6 million reported when the company went public in 1996 (two years after start-up). Steel Dynamics now employs more than 7,850 workers, and its sales growth has made it an industry star, the result of Bain Capital.
In 1995 GS Technologies was approached by Georgetown Steel Corp.’s chairman and CEO, Roger R. Regelbrugge, seeking a buyer or investor for his struggling company, which was suffering from slow markets for its products, continued labor problems and the weight of its acquisition costs involved with the purchase of unrelated retailer Waccamaw Potteries, which was made in an attempt to diversify and stabilize the company’s fluctuating cash-flows and profits.
In October 1995, GS Technologies and Georgetown Steel were both merged into a new holding company headquartered in Charlotte, N.C., which was christened GS Industries Inc. The new holding company assumed the current debt obligations of both companies, which provided great relief for Georgetown Steel (protecting hundreds of jobs then in peril) as well as new investment capital.
Did Bain make profits on its investment in these companies? Yes, in all of them. Was Armco “shuttered” in Kansas City? Yes, following a massive slowdown in the native U.S. steel markets and a prolonged labor strike. Did GS industries go into bankruptcy? Yes, but continued to operate and was purchased by another buyer, then bankrupted again, sold again … then sold again. Mitt Romney had left Bain Capital more than two years before the initial bankruptcy and months before Regelbrugge retired as chairman and CEO at Georgetown Steel.
Business has winners and losers. Markets change, competition is ever present, technology changes, environmental laws change the ways companies can operate, emissions laws have become much tougher to comply with and transportation issues (such as port depths, or the lack thereof) affect investment decisions made every day. The tenor of David Wren’s story was unfair. It portrayed Bain Capital, in general, and Mitt Romney, in particular, as vultures. Ha!
When we buy our children a car and they run it into the ditch is that Dad’s fault or General Motors fault? Maybe it’s the state highway department’s fault or maybe it’s God’s fault because it was raining.
Almost every time guess who is really at fault. It’s Junior. And for several decades the major, recurring problems at Georgetown Steel have in large part been the fault of the labor union. They want and demand guarantees. In business there are no guarantees unless you live in a socialist society.
That’s a fact of business, too.
The writer lives in North Litchfield Beach.
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