The facts about Bain and KB Toys - much worse than Vulture CapitalismSubmitted by Ian56 on Thu, 07/26/2012 - 02:12
There is good private equity and there is bad private equity firms.
My company at the time tried to find a partner in the 1990s and I was impressed by some of the people we talked with. They look at 100 companies pare it down to 10 and recommend one.
Here are the facts about KB Toys.
1. At the time it was purchased KB Toys was an industry leader, it was not in trouble.
In 1999, KBkids.com received top points from an e-commerce market research firm, the Gomez Advisors, in the categories of customer confidence, overall cost, and bargain shopping. Softletter named the site one of the 'Ten Best Online Software Stores of 1999' in its October 15th issue. Even the Wall Street Journal dubbed the site the 'best overall' online toy retailer. In a little more than four months online, KBkids.com increased its business more than 400 percent and twice ranked among the five biggest gainers on the NextCard eCommerce Movers index.
It seemed nothing could stop KB Toys from challenging its rivals in the toy industry. Operating profit for 1999 was up 51 percent from 1998. The company, seeking to capitalize on its growth, decided to hold an initial public offering in the spring of 2000, then postponed trading due to unfavorable market conditions. Notwithstanding this delay, KB was more focused than ever on fine-tuning its position in the very fashion-forward toy industry. With relatively small stores and a knack for innovation and creativity in marketing, KB was ready as ever to make quick adjustments to changing customer and merchandise trends.
2. KB Toys was a company that made money and exercised social responsibility
Bain engineered a private equity purchase of a profitable company that had already gone through 'creative destruction' eliminating unprofitable legacy operations and saddled the company with hundreds of millions of dollars of debt. The company was not just profitable but an example of the kind of companies that demonstrate a wider social conscious for its customers and the larger community. Sixteen months after purchasing the company with only 6% cash of the value Bain takes out dividends at over 400% of their investment. Significantly this was done during the time of the attacks on 9/11 when the country as a whole was undergoing a hightened sense of patriotism, sacrifice and social duty. Less than 2 years after saddling KB Toys with massive debt and taking out astronomical dividends, K-B Toys faces Chapter 11 bankruptcy and closes 354 previously profitable stores.
Vultures take meat that is already dead and complete the final loop in the cycle of life.
Bain took a company that had already been restructured and was surging in profits and cash. There was never any interest by Bain to restructure KB Toys, that had already been done.
Bain purchased KB Toys simply to raid its cash, and they did so during a time when the rest of the country was undergoing a period of reviewing the founding principles of the country.
To call what Bain did to KB Toys as 'Vulture' Capitalism is an insult to Vultures.
They were pirates and this is why there is so much interest to change the subject and not let the real facts of Bain Capital come to the surface during the Republican Primary.