The relationship between private equity firms and labour unions is not always an acrimonious affair.
While firms like Permira have faced struggles with workers’ organisations both in the US and the Europe, some private equity groups have successfully courted so-called Taft-Hartley plans: pools of capital comprising US union retirement plans.
One firm, Pomona Capital, raised $1.3 billion last year from limited partners that included Taft-Hartley plans for a secondaries investment fund.
Another firm that has great success in courting unions is the Yucaipa Companies, the investment group of billionaire Ron Burkle.
Yucaipa is probably best known for investing in companies with strong labour unions. It acquired Aloha Airlines out of bankruptcy in a deal that included a strong recommendation from the airline’s labour unions. Yucaipa, which was formed out of Burkle’s investments in grocery chains in the early 1990s, also made a $150 million investment in Pathmark Stores in 2006 that was lauded by The United Food and Commercial Workers Union.
The firm has raised two funds that target “labor intensive companies”. The funds, called Yucaipa American Alliance Funds I and II, focus on control buyouts of “operationally complex and/or underperforming core businesses in labour-intensive industries”, according to pension documents from the Los Angeles City Employees Retirement System, which committed $20 million to Fund II and $10 million to Fund I.
Yucaipa raised Fund II in 2008, amid the market downturn, and closed on $2 billion. The firm made an investment from the fund in Whole Foods Markets, buying a 7 percent stake in the Nasdaq-listed grocery chain for $98.6 million.
Fund II had an internal rate of return of 50.9 percent as of 30 September on $157 million invested of a $400 million commitment from the California Public Employees’ Retirement System, according to CalPERS documents. Fund I, which closed in 2002, returned 1.3x with an IRR of 10.1 percent, the pension documents said.
The funds target industries like manufacturing, logistics and distribution, and retail with an emphasis in the consumer food and industrial sectors, according to LACERS documents.