WebHeader_Grove.png
Play Live Radio
Next Up:
0:00
0:00
Available On Air Stations
Purchase your tickets for a chance to win $25k toward a new car or $20k in cash during NHPR's Summer Raffle!
Politics
Final results: Summary results | Town resultsThe BasicsThe New Hampshire primary is a mainstay in American electoral politics. Every four years, voters gather to help determine the Republican and/or Democratic nominee for President. While the state only has 12 electoral votes in 2012 (normally it’s 24, but the Republican National Committee penalized the state party for moving up the event date), the primary’s position as one of the earliest contests gives the state out-sized influence over the nomination process.Only the Iowa caucuses come before New Hampshire’s primary. Traditionally, New Hampshire’s broad-based primary contest has been seen as a counter-weight to Iowa’s more drawn-out caucus process, which tends to draw a smaller core of party faithful. In the case of the 2012 Republican race, New Hampshire’s electorate is seen to represent the more libertarian-leaning, fiscally conservative wing of the party, while Iowa voters are seen as representing the socially conservative wing of the GOP base.N.H. Primary summary provided by StateImpact - NH reporter, Amanda Loder

How Mitt Romney's Firm Tried — And Failed — To Build A Paper Empire

Mitt Romney, shown here when he was president of Bain Capital.
Mitt Romney, shown here when he was president of Bain Capital.

Mitt Romney is campaigning as a businessman who knows how to turn the economy around — a skill he says he learned during his time turning companies around, as president of the private equity firm Bain Capital.

So today, we're going to take a look at two deals that Bain did while Mitt Romney was heading the firm. This afternoon, we'll tell the story of one of Bain's successes.

In this story, we look at one of the deals that didn't turn out so well.

The story of how Bain Capital tried — and failed — to build a paper empire starts with an ordinary legal pad. Yellow-lined paper, wide margins. The most innocuous looking thing in the world. The company that makes it has been around for more than 100 years. Its name is as boring as its product: American Pad and Paper. Ampad for short.

Private equity works sort of like flipping houses. You buy a house cheap, fix it up nice, and sell it for a profit. In the process, you make the whole neighborhood better. That's the idea.

When you buy a house, you put down a bit of your own money. But typically you borrow most of the money. That's what Bain did in 1992, when it bought American Pad and Paper: $5 million down, $35 million in bank debt.

"We were highly leveraged as a company," says Russell Gard, the guy who Bain brought in to run the company. "Like, squeaky leveraged. We were tight."

Around this time, office superstores were popping up everywhere, and Bain wanted to buy more companies to build Ampad into an all-purpose paper supplier for the big chains.

So Bain bought a hanging file folder company called SCM in Marion, Indiana.

Jerry Rayburn, who worked on the factory floor at SCM, remembers the day when Bain took over.

"We knew something was going on when, toward the end of the day, we saw all the security guards starting to surround the plant," he says.

Then employees were told the company had been acquired by Ampad, and they had all been terminated. They were told they were welcome to re-apply for their own jobs.

"You could hear a pin drop," Rayburn says. "Everybody was in shock."

Most people did reapply, but things were different. The union was over. Lots of employees took a pay cut. Plant rules were different. The workers went on strike.

Mitt Romney was on leave from Bain at the time, running against Ted Kennedy for a seat in the U.S. Senate. And the Kennedy campaign had a field day with that strike, featuring it in campaign ads.

Gard says Romney called him personally and told him to end the strike. He was emphatic. Gard said no. This is a long-term strategy. To become a lean company, things have to change at the Marion plant.

Ampad moved its hanging-folder manufacturing operation out of Marion, Indiana, to a plant in another state.

By now, Ampad had pads and folders to put them in. Next on the list: an envelope company.

Bain went back to the bank and borrowed a couple hundred million dollars. Most of the money went to buy the envelope company, but about $70 million went to pay Bain and its investors.

Not long after that, Ampad went public. Bain used the money from the IPO to pay off a chunk of debt. In 1996, American Pad and Paper had its best year.

In 1997, Ampad made another purchase: A printer-paper company called Shade Allied.

The company made continuous-form printer paper, for dot-matrix printers — that old kind of computer paper, with the little holes running down the side.

That purchase didn't turn out so well. And Ampad started having other troubles.

Asian companies came on the scene with cheaper products. The price of pulp jumped. Ampad's revenues started to fall. And they have to keep paying interest on all that debt.

In 2000 — four years after the IPO-- Ampad declared bankruptcy. Stockholders were wiped out (including Bain, which still owned about a third of the company). Lenders got back a fraction of what they were owed.

"You can't continue to leverage companies up," says Russell Gard. "At some point, there's going to be a breaking point."

Clearly, the story doesn't always end this way. If it did, the banks wouldn't keep lending private equity companies like Bain massive amounts of money.

And Ampad itself? The pad company?

You can still get an Ampad pad today. The company is now being run by another private equity firm. A firm that saw an undervalued company, and bought it at a good price.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

You make NHPR possible.

NHPR is nonprofit and independent. We rely on readers like you to support the local, national, and international coverage on this website. Your support makes this news available to everyone.

Give today. A monthly donation of $5 makes a real difference.