Key Takeaways
- • Blackstone CEO Stephen Schwarzman endorsed Mitt Romney for president on November 30, 2011, citing profitable joint ventures between their firms as the basis for their professional relationship and friendship.
- • Blackstone and Bain Capital partnered on at least two deals, with the second transaction generating a 24x return on invested capital and the first producing a 16x profit, according to Schwarzman's account.
- • The marquee deal involved Transtar Inc., a 1988 acquisition in which Bain Capital served as a minority, passive investor in a holding company for rail and barge subsidiaries serving U.S. Steel, with Bain ultimately realizing a $13.3 million profit on its stake.
- • Transtar subsequently eliminated hundreds of jobs across Midwest operations during the 1990s as the domestic steel and rail industries faced structural headwinds from international competition and regulatory changes.
- • The partnership underscores the financial alignment between two of private equity's most prominent figures and highlights the outsized returns characteristic of leveraged buyout strategies during the 1980s and 1990s.
Summary
Stephen Schwarzman, chairman and chief executive of Blackstone Group LP, publicly endorsed Mitt Romney's 2012 presidential campaign on November 30, 2011, citing a shared history of highly profitable private equity investments. In an interview with Bloomberg Television, Schwarzman characterized Romney as a friend and business partner, referencing multiple joint ventures that generated substantial multiples on invested capital during their respective tenures in the leveraged buyout sector.
The centerpiece transaction discussed was the 1988 Transtar Inc. acquisition, in which Blackstone invited Romney's Bain Capital to participate as a minority investor. Transtar functioned as a holding company for rail and barge subsidiaries that provided services to U.S. Steel Corporation. According to Geoffrey Rehnert, a former Bain executive, Bain's position was explicitly structured as "completely passive," limiting the firm's operational involvement. Bain ultimately generated a $13.3 million profit from the investment before exiting its stake.
Schwarzman's public statements indicated that the Transtar deal was the second transaction between the two firms, with returns of 24x on invested capital. He also referenced an earlier deal that produced a 16x profit, though specific details regarding that investment were not disclosed in his November remarks. These returns exemplify the exceptional multiples achieved during the 1980s and 1990s leveraged buyout era, when disciplined capital deployment and operational restructuring could generate extraordinary shareholder value.
The Transtar holding company subsequently implemented significant workforce reductions across its Midwest operations during the 1990s, as both the domestic steel industry and rail sector confronted structural challenges stemming from international competition and regulatory shifts. This operational restructuring reflected common private equity practices of the period, though it also foreshadowed later political scrutiny of Romney's private equity record during the 2012 campaign cycle.
The centerpiece transaction discussed was the 1988 Transtar Inc. acquisition, in which Blackstone invited Romney's Bain Capital to participate as a minority investor. Transtar functioned as a holding company for rail and barge subsidiaries that provided services to U.S. Steel Corporation. According to Geoffrey Rehnert, a former Bain executive, Bain's position was explicitly structured as "completely passive," limiting the firm's operational involvement. Bain ultimately generated a $13.3 million profit from the investment before exiting its stake.
Schwarzman's public statements indicated that the Transtar deal was the second transaction between the two firms, with returns of 24x on invested capital. He also referenced an earlier deal that produced a 16x profit, though specific details regarding that investment were not disclosed in his November remarks. These returns exemplify the exceptional multiples achieved during the 1980s and 1990s leveraged buyout era, when disciplined capital deployment and operational restructuring could generate extraordinary shareholder value.
The Transtar holding company subsequently implemented significant workforce reductions across its Midwest operations during the 1990s, as both the domestic steel industry and rail sector confronted structural challenges stemming from international competition and regulatory shifts. This operational restructuring reflected common private equity practices of the period, though it also foreshadowed later political scrutiny of Romney's private equity record during the 2012 campaign cycle.
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