The problems continued into late 1987, and Romney was pessimistic about the company’s prospects. Bain’s goal was to make 10 times its money in five years in venture deals, he said, or about 58 percent a year. Fearing Staples could fail, he put less Bain money on the line in the third round of fund-raising, and helped put a value on the company’s private stock at $2.90 a share (an amount Stemberg’s ex-wife, Maureen, would later argue was too low).
“We were obviously proved wrong ultimately, but the price we thought was high at that stage given the company’s performance,’’ Romney said.
Meanwhile, Staples executives botched some presentations to the board, and yet another new store launch, in Port Chester, N.Y., took off too slowly. When Stemberg and supermarket magnate Leo Kahn, then Staples chairman, proposed an expensive new distribution center, some board members grew furious.
Samuels, the board representative for investor Fred Adler, said Adler was upset the company wasn’t growing faster. In fact, Adler was so frustrated, he invested in a Staples competitor, Office Depot in Florida, and suggested that they simply run Staples out of business, Romney recounted.
Romney went to New York to meet with Adler and try to talk him out of doing anything to harm Staples. It wasn’t a pleasant meeting.
“He was not friendly in the meeting and called me various names, and basically said, ‘It’s none of your business; we’ll do what we want to do,’ ’’ Romney said. Adler could not be reached for comment.
After that experience, Bain would institute rules barring co-investors in deals from backing competing companies. But Romney had to learn that the hard way.
There were some lessons of the business Romney had already learned by then, like that he had an inherent conflict of interest in carrying out his duties as a Staples director while also representing his firm’s interest as an investor.
“Those of us on the board who are also investors have a complicated role,’’ Romney said. “As board members we want to get as high a price as possible for the company, and as investors we want it low.”
Over the next few years, Staples grew to 24 stores and 1,100 employees. Bain would invest a total of $2.5 million. The plan was to take the company public in 1989 if it was profitable. And when it came to launching an IPO or selling the company, Romney felt that Bain’s interests were aligned with Stemberg’s, in wanting to fetch the highest price possible.
Still, Romney remained a skeptic about Staples’ prospects for a long time, according to his testimony, maintaining that many start-ups fail, and reeling off cold statistics that betrayed no illusions about Staples’ chances. He said he felt there was a 25 percent chance Staples would be successful, 25 percent that it would be an “OK investment,” another 25 percent probability it would be a “bad investment but we’d get our money back,” and a “25 percent probability we’d lose money.”
Romney was this pessimistic, even though Wall Street’s Goldman Sachs & Co. wanted to help do a deal and Staples already had a suitor. Sears was interested in acquiring the company and sent representatives to meet with Stemberg and Romney.
The price to sell, Romney told them, was $100 million to $130 million. But the Sears offer didn’t come close.
By April 1989, Staples went public at $19 a share and jumped to $22.50 in the first day of trading. The company’s value soared to more than $200 million, and Bain ultimately would make $13 million on its investment. Stemberg made even more.
It was a small sum compared with the massive profits Bain was starting to reap in leveraged buyouts. But it would be one of the few successful start-ups Romney could claim to have worked closely on. Today, Staples is the world’s largest office supply company, with more than 1,870 stores, 88,000 employees, and a market capitalization of $7.8 billion. Bain no longer has a stake in the company, which is facing challenges in the digital era as offices shift away from traditional paper and pen. But Staples has remained a centerpiece of Romney’s campaign narrative about understanding small business.
Speaking over the summer at the Republican National Convention, Stemberg recalled none of the hardships of the early days, just Romney’s willingness to help. “He never looked at Staples merely as a financial investment,’’ Stemberg said. “He saw the engine of prosperity it would become.”
Steven Syre of the Globe staff contributed to this report. Beth Healy can be reached at email@example.com.