Win-Win: Carlyle’s Union Negotiation Strategy

Union negotiations are part of life for most private equity firms, and more often than not both sides emerge worse for wear. Just look at Ripplewood Holdings, whose union dealings with Hostess left it looking like a Twinkie stuffed in the bottom of a backpack.

Yet Brian Bernasek, a managing director with the Carlyle Group, believes it need not be so.

“When you come at an opportunity with the mind-set that everybody can win, then you can find opportunities that you might not otherwise,” says Bernasek.

Bernasek focuses on investment opportunities in the industrial and transportation sectors—industries with a history of an active union workforce. Over
the years, he has been actively involved in several such investments, including Allison Transmission, AxleTech International, and the Hertz Corp.

Allowing the union to participate in the upside of private equity ownership is often key. While Carlyle owned Allison Transmission, Bernasek structured a labor agreement with the local United Auto Workers union that gave workers a bonus plan with the same incentives provided to management. The union had had no bonus participation under its prior owner, General Motors.

Legacy union contracts are often the biggest hurdle. To reduce costs but appease existing workers, Bernasek implemented a two-tier wage program that gave veteran employees greater financial upside than new hires. “This allowed us to hire more people, which the union appreciated and liked,” says Bernasek. “But it allowed us to do it in a more cost-effective way.”

Under Carlyle’s ownership, revenue increased by approximately 15 percent, additional product lines were developed, and debt was lowered.

The trick to doing a successful deal with a company that has a union presence is gaining the union’s trust, something Bernasek admits is a challenge. “There’s a hurdle that we have to get over every time we have a discussion with the union,” he says. “We have to make them understand that there is an opportunity for a win-win. A lot of it is reference-based. What you’ve done in the past matters.”