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Bain Capital Buys Toms, Will Still Give Away Shoes

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Toms, a canvas shoe empire, has agreed to sell half of itself to Bain Capital, a private equity giant, in a deal that values the 8-year-old footwear brand at $625 million—a little bigger than Quiksilver, roughly on a par with SodaStream.

For Toms founder Blake Mycoskie, the transaction is the validation of a vision and a huge payday. It also brings Toms some blue-chip corporate clout as it expands its product offering and looks to expand abroad. “This partnership will enable Toms to grow faster and give to more people in more ways than we could otherwise,” Mycoskie said in the statement.

The pairing, however, is a bit odd—the M&A equivalent of a business suit and, well, a pair of Toms. Private equity firms such as Bain make money by what they call “creating value.” Sometimes that means a bit of MBA judo that the acquired companies aren’t capable of—say, a strategic coup levered up with a heap of debt. More often than not, however, it’s simply cutting the fat of the companies they snap up—in the parlance of the sector, “finding operational efficiencies.”

At Toms, the fat is the point: It gives away half its product. The buy-one, give-one sets Toms apart from other casual shoemakers, as much, if not more, than its canvas styling. The appeal is golden: Customers get a pair of shoes and the self-satisfying sense that only shopping-for-global-good can provide. “Blake found that for-profit and a bottom-line focus didn’t have to be in conflict with for-good,” Bain’s Ryan Cotton told Bloomberg.

But what if the profit part of that equation goes away? What if the company hits a rough patch and the seemingly ubiquitous canvas espadrilles stumble out of vogue? Believe it or not, white Birkenstocks, not motley Toms, are the shoe of the summer—in New York, no less.

Toms has tried to diversify with sunglasses and bags, and free-trade coffee, and Bain says it’s committed to the high road. But the company, and private equity as a whole, prides itself on making the tough choices its target companies won’t. Plenty of Bain companies have ended up in bankruptcy proceedings over the years. And the firm’s record of layoffs was laid out in detail when co-founder Mitt Romney ran for president in 2012. Free pairs of shoes, one assumes, are easier to toss than jobs.

What’s more, private equity lives and dies by the “exit,” the point at which firms eventually sell the company, whether it be to a conglomerate, another private equity firm, or public shareholders in an initia public offering. Toms’s charitable model has to survive not only Bain but also whatever bidders come behind it.