Thu February 23, 2012
How Mitt Romney's Firm Transformed A Struggling Company, In 5 Steps
Originally published on Mon May 7, 2012 10:19 am
Mitt Romney says his experience in private equity taking over troubled companies would make him a good manager of America's economy. So we're reporting on companies that Bain Capital bought while Romney was in charge of the firm. This morning, we told the story of one that went bust. Here's the story of one that succeeded.
How A Private-Equity Firm Turns A Company Around
Step 1: Find a little company that's lost inside a big company.
In 1995, Wesley Jessen was a struggling division of Schering Plough, a big drug company. "We were not a very profitable company at all," says Bill Flynn, who worked in Wesley Jessen's finance division at the time.
Wesley Jessen had a valuable patent for color contacts. Michael Jackson wore Wesley Jessen color contacts in the Thriller video.
But the color contact lenses they made were the kind that you kept for a year. When disposable lenses got popular, Wesley Jessen couldn't keep up.
Bain saw potential in the company. So they came in and bought it. Like most private equity deals, it was done mostly with borrowed money. Bain put $6.5 million down, and borrowed another $43 million.
Now, they had to pay interest on all that debt, while turning the company around. The key to doing so:
Step 2: Hire the right leader.
Bain brought in a guy named Kevin Ryan to run Wesley Jessen. He's widely admired as a smart, charismatic, hard-working exec.
Right off the bat, Ryan temporarily halted all manufacturing. Doctors had been stuck with a glut of color contacts, and Ryan asked them to send back what wasn't selling.
"What that did was make for an inventory nightmare," says former controller, Ron Artale. "But-- it made for a lot of credibility with the doctors."
Step 3: Focus on the customer.
Lenses were being sent out in packs of three — oddly, given that people have two eyes. Ryan changed it to packs of six. He cut prices and expanded the sales force all over the country to figure out what the doctors wanted.
Step 4: Focus.
The company had a plant in Puerto Rico making conventional lenses that weren't selling well. Ryan saw that colored contacts were the company's key niche, so he had the plant start making custom lenses. One popular product was "Wild Eyes" — lenses with thunder bolts,concentric circles, yellow lenses. For Halloween. Wild Eyes were a hit.
To expand Wesley Jessen's business, Bain borrowed approximately $70 million to buy another company, Pilkington Barnes-Hinds, with international capacity.
Step 5: Reward.
In 1997, Bain took Wesley Jessen public. Executives and managers, who hadn't received a raise since Kevin Ryan showed up, got bonuses and cashed in the stock options they'd received instead. Workers received cars and other prizes.
Wesley Jessen was ultimately bought by another company, Ciba Vision. Bain walked away with $300 million.
Not all of Bain's deals turned out this well — a number of the firm's investments end in bankruptcy. But Wesley Jessen is still in business today.
MELISSA BLOCK, HOST:
Mitt Romney says his experience in private equity, taking over troubled companies would make him a good manager of America's economy. We've been reporting on deals that were made by Bain Capital while Romney was in charge of the firm. Today, on Morning Edition, we heard about one venture that went bust. Now, one that turned out a lot better. Zoe Chase with NPR's Planet Money team has our story.
ZOE CHASE, BYLINE: Sometimes a company turnaround works exactly as advertised.
TOM STEINER: One of those times in your business career when things were going great. Times kept getting better and better.
CHASE: This is Tom Steiner. He was an executive at one of the companies that was bought by Mitt Romney's firm Bain Capital in the 1990s. He's nostalgic for those days. Bain made money. The employees made money. And a company that was losing money, started turning a profit. So how did they do it?
Step one, find a little company that's lost inside a bigger company like Wesley Jessen, contact lens company.
BILL FLYNN: I was in the finance area of Wesley Jessen and we were not a very profitable company at all.
CHASE: That's Bill Flynn. He's talking about 1995, when the pharmaceutical company Schering Plough was looking to get rid of Wesley Jessen, a division that was becoming a drag on their business. But they had this valuable patent, color contacts. Michael Jackson wore Wesley Jessen color contacts in the "Thriller" video and this had been a good business - niche, but good.
But there was a problem. The color contact lenses they made, you threw them out after a year or so. When disposable lenses got popular, Wesley Jessen couldn't keep up.
FLYNN: Bain came in and gave us a clean slate.
CHASE: But Bain's path to profitability at Wesley Jessen might seem odd to someone unfamiliar with private equity. They put as little down as possible to buy the company, 6.5 million, and borrowed a lot, 43 million. So now they had to turn a company around with a whole bunch of new interest payments. How? This brings us to step two, hiring the right man for the job.
FLYNN: The primary contribution that they made was bringing in a new CEO by the name of Kevin Ryan.
STEINER: He could get people to do things they had not normally done.
CHASE: Former executives Tom Steiner and Bill Flynn say Kevin Ryan was adored. And here's what he does right off the bat, huge surprise. He stops all manufacturing.
RON ARTALE: A very expensive decision. No one was let go, but everyone was furloughed.
CHASE: Former comptroller Ron Artale says there was a glut of color contacts in the hands of doctors and he asked them to send back the extras.
ARTALE: Now, what that did, of course, was make for an inventory nightmare, but it made for a lot of credibility with the doctors.
CHASE: This brings us to step three, the customer. Right away, they realized they shouldn't be sending out packages of three lenses at a time, it should be six. Why would you have three packs, when people have two eyes?
ARTALE: That question was, of course, discussed a lot.
CHASE: Tom Steiner says the price of the contacts was lowered by almost half. Step four, focus. Remember how popular color contacts had become.
ARTALE: You may have seen the phrase wild eyes.
CHASE: Wild eyes, lenses with thunder bolts, concentric circles, yellow contacts, the kind you didn't throw away. These lenses could be custom made at a plant in Puerto Rico that had been struggling. Sales go up. But even before the company turns a profit, Wesley Jessen borrows about another 70 million to buy another company. This gives them international capacity and UV protection lenses.
Here we are at the last step of a company turnaround, reward. The company sells shares to the public, executives and managers, who hadn't received a raise since Kevin Ryan showed up, got bonuses and cashed in their stock options. The workers on the line, they got something, too.
ARTALE: We used to give way two cars twice a year.
CHASE: Wesley Jessen was so profitable by the time it was sold to another big company, Ciba Vision in 2000, that Bain walked away with $300 million for their investors. And the company that Kevin Ryan had built, it was worth even more. Ryan's retired now, but the company's still operating today. Major success story. Not every story ends like this. A number of companies that Bain turns around end up in bankruptcy court, but this one worked out Zoe Chase, NPR News. Transcript provided by NPR, Copyright National Public Radio.