By Dan Primack
December 13, 2011

New York Times scribe Andrew Ross Sorkin today delves into Mitt Romney’s private equity past, which is fast becoming a significant issue on the campaign trail. His piece made sense, until I got to the following section:

Mr. Romney’s opponents, of course, have combed through his former deals at Bain looking for tales of excesses and failure. Perhaps the worst deal he worked on — which has been highlighted by several news organizations — was the buyout of Dade International, a medical company, which filed for bankruptcy after Bain had cashed out with $242 million.

But criticism about the Dade deal has not stuck as a true talking point, in part because the details painted a complicated story.

Dade was on the verge of bankruptcy when Bain originally bought the company. While Mr. Romney made cuts at the company, he also invested heavily, turning it into the industry leader. At one point, he pushed back against colleagues who wanted to flip the business for a quick profit and instead directed them to make an acquisition to bolster it.

It was only after Dade had been turned around that Bain and the company’s other investors leveraged the company up even more and paid themselves a huge dividend, saddling the company with too much debt.

I’m happy to defend much of Romney’s work at Bain Capital, particularly since the firm’s primary beneficiaries are nonprofit institutions like university endowments and charitable foundations. But how on earth is the Dade International situation not a “true talking point?” Is Sorkin saying that ill-advised dividend recaps are okay so long as the company was in bad shape when originally acquired by its private equity sponsor? You can kill so long as you first rehabilitate?

Let’s imagine I find a starving man on the street. I give him food, and then help set him up with a home and a job (using money out of my own pocket). He then pledges that if he becomes prosperous, he will repay me and then some. But I see him starting to have some modest success, so choose to rob him of most everything. He soon dies of hunger (given that he is once again destitute). Was my action morally acceptable because he would have starved years ago without my help?

Dividend recaps often are the worst of private equity, contributing to the industry’s reputation as destructive financial engineers. If we can’t be honest about that side of the ledger, then we can’t adequately analyze Romney’s resume. The good or the bad.

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