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

Mitt Romney, shown here when he was president of Bain Capital.
David L. Ryan
Boston Globe via Getty Images
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.

Zoe Chace
Zoe Chace explains the mysteries of the global economy for NPR's Planet Money. As a reporter for the team, Chace knows how to find compelling stories in unlikely places, including a lollipop factory in Ohio struggling to stay open, a pasta plant in Italy where everyone calls in sick, and a recording studio in New York mixing Rihanna's next hit.