Under Mitt Romney’s leadership, investment firm Bain Capital had some notable successes — and some equally notable failures — when buying companies to turn around.
Their record in Maryland is no exception.
Under Romney, the firm invested in a Massachusetts health care provider with offices in Maryland that failed several years later. But it also helped improve the financial health of office supply company Staples, Inc., by opening a regional distribution center in Hagerstown.
Romney’s tenure at Bain, from 1984 to 1999, has emerged as a major issue in the Republican presidential primaries.
The firm used investment money to take over or purchase large stakes in struggling companies, often installing new leadership to help the companies run more efficiently.
Romney has argued that he helped create thousands of jobs during his time at Bain. But his critics have pointed to companies that Bain restructured by laying off thousands of workers, while taking money out of the company to return to investors.
Bain declined to comment for this story. The Romney campaign did not return a phone call seeking comment.
Staples, a Massachusetts-based company widely touted as one of Bain Capital’s success stories, expanded into Maryland during Romney’s tenure.
In 1984, Romney co-founded Bain Capital. Two years later, with the help of Bain’s investment, Staples launched. Eventually, Bain would reap a sevenfold profit on Staples Inc., which now has more than 2,000 stores.
In 1996, Maryland won a bid to have a new $43 million Staples distribution center built in Hagerstown that state officials said brought 700 jobs to the area.
The state won the bid by offering a $4.2 million incentive package, which included a $700,000 state grant, a $2 million state loan, a $600,000 state job-training grant and $925,000 worth of road and water improvements from Washington County, according to a report from The Baltimore Sun.
The firm also invested in a Maryland-affiliated doctors group that eventually went out of business, Physicians Quality Care.
The company was formed in March 1995 as a health maintenance organization based in Boston with affiliated practices in Atlanta and Towson.
Almost immediately after forming, the company experienced major financial losses. From March 1995 to December 1996, the company lost more than $7 million.
The company decided to seek outside investors in order to become profitable, according to Securities and Exchange Commission documents.
In 1996, Bain invested $15.5 million in the company, which it used to buy more medical practices.
In 1997, the company’s Towson affiliate, Clinical Associates, merged with Flagship Health, a Baltimore doctors group. In all, Physicians Quality Care and its affiliates employed approximately 135 doctors in Maryland.
By bringing a large group of general practitioners and specialists into their network, the company hoped to, “generate increased demand for the services … of its affiliated physicians [and] treat patients in lower cost settings,” according to a 1998 quarterly report.
Dr. Richard Maffezzoli, president of Clinical Associates at the time, said the strategy was not effective.
“The reason it failed is because physicians are like cats — they don’t herd together well,” Mafezzoli said.
Dr. Stanley Watkins, an oncologist with the group, said the HMO model was flawed.
“The original premise — that by putting a large number of physicians in one company they would improve efficiency and health care — that has just not worked,” he said.
In 2000, despite the investment from Bain, Physicians Quality Care went out of business. The Maryland medical practices that were affiliated with Physicians Quality Care were forced to pay back money they were given to entice them to enter the group.
Dr. Dana Frank, president of Physicians Quality Care, said the ordeal wasn’t easy for the doctors.
“What happened was that many of the practices that joined were bought, and so they ended up having to return a portion of that money. So, I’m sure it was painful,” Frank said. “It’s always painful when you have to pay to leave your job.”
In addition, a number of physicians had invested their own money in the company.
“There was fallout obviously because physicians had invested, and a number of physicians lost some money, but all of us regrouped and went on with our lives,” Frank said.
Frank insisted that the failure of the company was not Bain’s fault.
“I don’t think that any of the investors were responsible for the failure of the company,” he said. “The basic decision making was done by the boards.”
Maffezzoli said not all of Bain’s investments succeeded.
“With companies like Bain Capital, you win some and you lose some, and we just happened to be on the losing side,” Maffezzoli said.