Bain Capital has a knack for throwing big toy retailers into bankruptcy.
The buyout firm founded by Mitt Romney — which got slammed this week by the Chapter 11 filing of Toys ‘R’ Us — also saw its reputation dinged a dozen years earlier with the shuttering of KB Toys, which at the time had been the nation’s second-biggest retailer.
In both instances, critics say Bain and its private-equity partners left the chains vulnerable by saddling them with heavy debt loads as they took them private, crippling their capacity to compete in brutal price wars that have dogged the industry.
In the case of mall-based KB Toys, Bain execs blew off competitive threats from big discounters like Walmart and Target in the niche. Toys ‘R’ Us, meanwhile, has faced additional pressures from Amazon, as well as kids’ increasing fascination with playing games on phones and tablet devices instead of physical toys.
“The owners look as though they decided to bleed Toys ‘R’ Us instead of keeping them relevant,” Brian Devine, who was a top executive at Toys ‘R’ Us in the 1980s, told The Post.
Bain Capital — whose co-chairman Josh Bekenstein and senior adviser Matthew Levin sat on the boards of both KB Toys and Toys ‘R’ Us — declined to comment.
After buying KB Toys in 2000, Bain and its co-investors had the retailer borrow $85 million to pay the firm and its co-investors a dividend — a move that left the chain, which had been generating steady earnings, strapped for cash as deepening price cuts at Walmart lured more shoppers away from malls.
In that case, Bain’s cash grab left it with a profit on its investment, despite the fact that 86-year-old KB Toys got liquidated in 2008.
At Toys ‘R’ Us, however, Bain and its co-investors, KKR and Vornado Realty, never took a dividend as they watched the value of their $1.28 billion equity stake in the $6.6 billion, debt-fueled buyout go to zero in this week’s Chapter 11 filing.
That’s partly because the private-equity firms underestimated the chain’s profit outlook when they bought it in 2005, soon finding that relentless price pressure in toys was sapping the company’s ability to run its business.
A key question after the holidays will be how many of Toys ‘R’ Us’ 879 US stores will be shuttered in the restructuring, a lawyer in the bankruptcy process told The Post.
At a court hearing this week, Toys ‘R’ Us “signaled they did not spend enough money on their stores,” the lawyer said.