Playing a new card

For most private equity firms, dealing with unions comes with the territory when doing a buyout. It’s common for organised labour to question the potential consequences an LBO will have on its members, particularly when it involves the possibility of layoffs, closures or possible changes in healthcare benefits.

The Carlyle Group and KKR have both experienced street protests by union members outside their offices, but LNK, a US manager in the mid-market where such actions are less common, has faced an entirely different broadside from Unite Here – a labour organisation representing some 270,000 workers in the food service, hospitality and other industries.

The union has aimed a salvo of press releases at LNK this year that address issues more relevant to institutional investors than workers’ rights.

Unite Here has questioned whether LNK has properly valued the bakery and café chain Au Bon Pain, which it acquired seven years ago; its retention of Susan Morelli as chief executive of Au Bon Pain over its entire hold period; and LNK’s co-investment allocation process as it seeks to raise $460 million for its third private equity fund. Nowhere does the union outline what these matters have to do with its members.

Officials from LNK declined to comment on the campaign by Unite Here, but Jim Kane, a research co-ordinator at the union and part of a team focused on private equity, admits that the questioning of investor issues around LNK comes at a time when Au Bon Pain employees in Pennsylvania are engaged in a labour dispute.

“Private equity is an industry that generally hasn’t had a lot of attention compared to the public markets. From a governance level the work we do can benefit LPs,” he says.

Nor has the recent transparency debate escaped the union’s attention.

This marks a break from how bigger unions like the Service Employees International Union, which represents about 1.9 million workers in the US and Canada, have approached dealing with private equity groups like Carlyle amid the M&A deal boom several years ago. Back then, the union launched a campaign to address the wellbeing of residents of Manor Care in connection with Carlyle’s $6.3 billion buyout of the healthcare provider in 2007.

For now, though, traditional conflicts between labour organisations and buyout groups have largely died down, says one GP.

“Strategies focused on slashing payroll are much less common. As a result, we have found relations with unions are less contentious, growing companies often means growing employment, which is in the shared interest of shareholders and unions,” says Chip Chaikin, a partner at Blue Point Capital Partners.

While that may be the case, Unite Here’s focus indicates that organised labour is becoming better educated about how the asset class operates. And, like buyout groups trying to acquire a company, special interest groups will try to use whatever leverage is at their disposal to achieve their aims.