How LBO Firms Got Under Union’s Skin

“He who has a thousand friends has not a friend to spare, while he who has one enemy shall meet him everywhere,” goes an adage attributed to Ralph Waldo Emerson.

I’m not sure if the Service Employees International Union qualifies as a full-blooded enemy of the buyout industry. But the union’s criticism does seem to be everywhere—first in a report published last month month called “Behind the Buyouts,” and since then in a stampede of press releases and blogs spotlighting unflattering features of the latest deals. This Wednesday SEIU President Andy Stern is slated to speak at a Congressional hearing, “Private Equity’s Effects On Workers and Families,” hosted by the House Financial Services Committee.

So what did buyout firms do to deserve the apparent enmity of a fast-growing union that represents 1.8 million North American workers in health care, property services, and public services?

Well, first imagine that you’ve personally spent the last 20 years fighting to improve salaries and benefits for office-building janitors and security guards, many of which work for third-party contractors. Then imagine that for years you battled one particular property owner, Chicago-based Equity Office Properties Trust, to something of a draw. In cities like Chicago and New York, you successfully secured health insurance for union members. But in other cities you failed to. Finally, imagine you witness Equity Office Properties acquired in a $39 billion leveraged buyout in which the company somehow scrapes together hundreds of millions of dollars in transaction fees to pay the new owner.

Now you know what it feels like to be Stephen Lerner. He’s the long-time director of SEIU’s “Justice for Janitors” campaign, and now also director of its effort to compel private equity firms to provide a better deal to rank-and-file workers. By Lerner’s estimate, the fees paid by Equity Office Properties to The Blackstone Group could have provided a year’s worth of health insurance for something like 150,000 people. “What struck us was that huge fees were taken out of the deal, and workers didn’t share any of the benefit of that,” Lerner said.