How Mitt Romney Made a 289% Return on Experian in 7 Weeks

The deal, which made millions and cost few jobs, shows the strengths of private equity. So why doesn't he talk about it?

Mitt Romney bain capital.jpg
Bain Capital via the Boston Globe

Attacks on Mitt Romney's career at Bain Capital have become a pervasive theme of the presidential campaign, sharply dividing Democrats and sparking a national debate about the relative morality of the private equity industry.

Every week this month, the Obama campaign has hit the airwaves with a new story of a company that was wronged by Bain, rolling out another parade of disgruntled ex-factory workers who blame Mitt Romney for the misfortune of the middle class.

But Bain's failed investments only tell part of the story. An examination of one of his most lucrative deals -- the acquisition of the consumer credit ratings company Experian -- reveals another side of Romney's record, one that the candidate himself has been reluctant to address.

By all measures, the Experian buyout was an insane success. According to a 2000 prospectus of Bain's deals, Bain invested $87 million in the consumer credit-ratings company, and flipped the company seven weeks later, reaping $252 million -- a whopping 6,638 percent annualized return on its initial investment. Although job numbers are difficult to determine, Experian had no major layoffs, and is now four times the size it was at the time of the deal.

In an exclusive interview with Business Insider, D. Van Skilling, the CEO of Experian at the time of the Bain buyout, explained how the deal went down, and told us why he thinks the Obama campaign isn't telling the whole story about Romney's time at Bain.

Like many of the companies Bain acquired, Experian Information Solutions began as a successful, but neglected, subsidiary of a larger corporation, in this case defense giant TRW. While the information services division was profitable and poised for growth, it had little in common with the core defense and automotive parts business of its corporate parent, according to Skilling.

"We were, in size, the smallest of the three segments, but we were actually producing a lot of cash, and the cash was being used to grow the automotive and the space and defense segments, rather than being reinvested in the information systems," Skilling told Business Insider. "So I said 'Either play me or trade me.'"

TRW decided on the latter, so Skilling and about 60 other Experian executives went looking for a buyer, and finally settled on a $1.01 billion offer from Bain Capital and Thomas Lee, another Boston-based buyout firm. The deal was mostly financed by debt, Skilling said, with each of the firms investing only about $100 million.

Apart from being the right price, the Bain-Thomas Lee offer was attractive because the investment group planned on keeping the company whole, and took a more gentle approach than a lot of other leveraged buyout firms at the time, Skilling said. The investment group, like the Experian executives, saw a potential for growth in the credit reporting market, particularly in the nascent direct marketing sector.

"It was good business -- it produced a lot of cash, it was profitable, and it had excellent growth potential," Skilling said. "They were keeping the business whole, which was good for the employees and good for our customers," Skilling said. "We were looking for opportunities for growth."

What happened next was pretty standard for Bain deals: The firm installed two of its own men on Experian's board of directors -- including longtime Romney confidante/alter ego Bob White, now a senior advisor to the campaign -- and started looking for possible growth opportunities, mostly in overseas credit reporting markets and consumer marketing.

But just seven weeks after the buyout, British conglomerate Great Universal Stores -- the parent company of one of Experian's acquisition targets -- offered to buy Experian for $1.7 billion in order to grow its own consumer credit reporting division, CCN. The company had expressed interest in acquiring Experian before the Bain buyout but had never been able to reach a deal with TRW. But the Bain buyout, combined with a personnel change that put Margaret Thatcher's former chief of staff David Wolfson at the helm of Great Universal Stores, put the British retail giant in the position to try again.

So basically: Bain, with Thomas Lee, was able to identify an asset that another company was able to pay 70 percent more for -- and with leverage, that turned Bain's return into the monster number above.

Although the Experian executives "really were not anxious to sell the business," the benefit to the shareholders -- including Bain and Thomas Lee -- was too good to turn down, Skilling said. The investment group encouraged the sale, and ultimately reaped $500 million over what the firms had paid to buy Experian. Skilling and about 50 other Experian executives also became millionaires from the deal.

It's not too surprising that Skilling remembers his interactions with Romney and the Bain men positively.

"My experience with Mitt was that he was not only a very, very smart person, but he had very high integrity," Skilling said. "He was also a caring person -- when we would have meetings he would ask about employees in general, specifically."

"There was never a hint of financial chicanery at all, and that's not necessarily true of all buyout firms and private equity firms," he added.

Romney's silence underscores the difficulty of trying to run for president on a private equity record.

Skilling, a registered Republican, said he hasn't been in contact with Romney since the sale, but that he plans to vote for him in the 2012 election. He called the Obama campaign's attacks against Romney's record at Bain "hogwash."

The deal was one of the most successful of Romney's career, yielding the highest rate of return of the 77 investments Bain made between 1984 and 1998, according to the 2000 prospectus. It is also one of the 10 deals that accounted for more than 70 percent of Bain's cash during that period. Moreover, unlike many of Bain's investment targets, Experian continued to grow after Bain cashed out, and is now a global information services powerhouse.

But despite this success, Romney rarely, if ever, mentions the Experian deal. While the political pitfalls of associating with the widely-loathed consumer credit and direct mail industries are obvious, Romney's silence underscores the difficulty of trying to run for president on a private equity record. The Experian deal is further evidence that Bain's objective is to make money for its investors -- and that Romney is considered so successful because he was good at doing just that.

This article originally appeared at Business Insider, an Atlantic partner site.