Cinci Enquirer: “Private Equity Plays Critical Role”

BUSINESS IN-DEPTH: Under scrutiny, private equity plays critical role

Written by Alexander Coolidge and Josh Pichler

Vince Nardy has a vision for AFC Industries Inc., the Fairfield company he’s headed for less than a month: Grow its product line of fasteners and other industrial components and expand geographic reach beyond the current 200 miles.

Nardy expects to do that by relying on an undisclosed investment from Rockwood Equity Partners LLC, a Cleveland- and New York-based private-equity firm that typically invests in manufacturing companies with revenues between $10 million and $70 million.

If everything goes as planned, 25-year-old AFC will enjoy growth and prosperity into the next decade, while Rockwood’s new asset will increase in value that pays off to investors.

In Ohio and Kentucky, private-equity firms have invested more than $54 billion in 650 companies employing nearly 500,000 workers. Local finance experts say the AFC-Rockwood story is a typical example of how private-equity transactions work.

But the private-equity industry has come under scrutiny in the midst of a hot Republican presidential primary. Mitt Romney has been criticized for his performance with Bain Capital, one of the world’s largest private-equity firms, which he co-founded in 1984 and led until 1999. Romney’s opponents have depicted Bain as a corporate raider that saddled companies with debt and cut thousands of jobs.

The Romney campaign has responded by highlighting Bain’s investments in successful companies including Cincinnati-based totes-Isotoner, Staples, Sports Authority and Domino’s Pizza. The campaign says Bain created a net of 100,000 jobs under Romney.

Lost in the political noise is the critical role that private equity plays in the U.S. economy. It allows businesses to grow and be run without the pressure of quarterly returns that public companies face, and gives successful entrepreneurs another succession option when they’re ready to retire.

It’s an investment vehicle for pension funds, endowments and foundations. And while these financiers acknowledge that debt is part of private equity transactions, and that jobs do get cut, they dispute the perception that private equity firms succeed by stripping companies to the bone.

“There are companies out there that profit by liquidating companies and assets,” says K. Rodger Davis, managing partner at Northcreek Mezzanine, a Cincinnati-based lender that helped finance the AFC-Rockwood deal. “Private equity firms are not those businesses.”

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