Bain Capital and the Little Steel Mill That Could

[Geee]

National Review:

Since the 1960s, only one American corporation has independently begun to produce steel on a large scale, and Bain Capital deserves a good deal of the credit for its success. In the spirit of globalization and creative destruction, private-equity firms are supposedly drivers of off-shoring and outsourcing, accelerating the decline of key American industries. Though it’s impossible to say what effect Mitt Romney’s work at Bain Capital has had on American industry overall, he can point to at least one success story in an ailing American industry: Steel Dynamics.

Bain’s investment in another steel firm, GS Technologies, was the impetus for a Reuters story repeatedly cited as an example of the worst kind of private-equity investment — loading a company down with huge debt, extracting dividends for the investors, and charging for consulting services. But Bain’s more successful involvement in Steel Dynamics, an Indiana-based company, has not received nearly as much attention (though the Romney campaign has cited it as a counter-example). From its founding in 1994, Steel Dynamics (SDI) has grown to be America’s fifth-largest producer of carbon-steel products, one of just six major U.S.-owned steel companies.

Keith Busse, now chairman of SDI, made his reputation in the 1980s as an executive at Nucor, one of the largest steel firms in the U.S., pioneering a new type of steel mill, “mini-mills,” which use electric-arc furnaces instead of blast furnaces, an innovation that giants such as Bethlehem Steel had not embraced. After he was passed over for promotion in 1993, he and two of his colleagues began discussing the possibility of striking out on their own. They saw potential in mini-mill technology, which had typically been used for applications such as automobile manufacturing, as a way to produce higher-grade steel at a much lower cost.

There were significant obstacles: The steel industry is highly capital-intensive, the American steel industry was hardly a hot startup market, and the venture would be staggeringly expensive — well beyond their own means, and those of most investors. According to a 1996 interview with Busse in the Fort Wayne Journal Gazette, early meetings with traditional investment bankers were unsuccessful; there was little interest in supporting a new, independent steel venture with the hundreds of millions of dollars that would be needed before any mills would even become operational. But Busse persevered and eventually found two firms willing to provide the millions in initial funding: GE Capital and Bain Capital.