Adult Concerns on Child Care Deal

By Annys Shin
Washington Post Staff Writer
Saturday, May 10, 2008

There's a fight brewing around sandboxes nationwide. But the combatants don't wear Pull-Ups. Instead, they sport BlackBerrys and picket signs and talk of portfolios and payouts.

The subject of the dispute is Bain Capital Partners' buyout of Bright Horizons Family Solutions, the largest provider of employer-sponsored child care in the nation and the Washington region. Bright Horizons shareholders approved Bain's bid Wednesday.

Parents wondering how the deal may affect them are getting two answers.

The Service Employees International Union, which also protested the Carlyle Group's buyout of the Manor Care nursing home chain, suspects Bain's acquisition of Bright Horizons will have a negative impact on the quality of the care the chain provides for more than 70,000 children.

Recent buyouts in some industries have resulted in layoffs as the new owners streamlined operations. The union says Bright Horizons will be under pressure to cut costs because as part of the $1.3 billion deal, it will take on $850 million of debt.

"The question is, where is the cost cutting going to come from when the people providing care are already underpaid and the stability of the workforce is critical to the quality of care for kids?" said Kim Cook, president SEIU Local 925 in Seattle.

The SEIU's concerns are unwarranted, executives at Bain and Bright Horizons said.

"No centers are going to close," Bright Horizons chief executive David Lissy said. "There is no way to satisfy parents and deliver the level of quality care without taking care of those who are working for us. I don't expect any of that is going to change."

Parents pay as much as $1,800 a month to send their children to one of the more than 600 centers in the United States. In the Washington region, Bright Horizons operates about 20 centers sponsored by federal government agencies and such large private employers as Marriott International and George Washington University.

The SEIU, which is made up of 1.9 million janitors, security officers and health-care workers, has waged a very public campaign against private-equity buyouts since last year. Though the union doesn't represent Bright Horizons workers and is not trying to organize them, it sees itself as standing up for working parents, Cook said.

So far, however, parents don't appear to share the SEIU's concerns. Several people who were dropping children off at a center at 21st and K streets NW yesterday morning said the buyout didn't trouble them.

"They've told us there won't be any change in service," said Michael Koenig of Chevy Chase. "We're happy so far. It's not anything I'm too worried about."

Bright Horizons, based in Watertown, Mass., expanded to the Washington region not long after it was founded in 1986. It was started by two former relief agency managers, Linda Mason and Roger Brown, who had an idea about how to offer high-quality care while alleviating some of the financial pressures child-care providers typically face. Their solution was to link with corporate employers interested in holding onto employees by offering such benefits as on-site child care.

Under this model, the employers subsidize care, usually by providing space. The cost savings allows Bright Horizons to pay higher wages and retain more of its workforce, which child-care experts say is key to quality care.

"It's proven to be very good strategy," said Amy Junker, a senior analyst at Robert W. Baird & Co., an investment research firm in Milwaukee. "It makes sense because it allows you to have your child close to where you work. If you want go down and check on them at lunch time, you can." She added that "it prevents you from having to commute to drop your child off."

In the long run, the company has demographics on its side. The number of women of childbearing age entering the workforce is expected to increase, as are the number of children under age 5.

Until the buyout, the chain's short-term outlook was less rosy. The company's stock had been under pressure since last year when its largest bloc of customers, United Auto Workers members at Ford Motor, decided to end their contract. Bright Horizons operated 13 centers for the union. As a result, it fell short of its earnings target in mid-October.

The company is still growing, with plans to open more than 40 centers this year. But the loss of the auto union unnerved some analysts, who began to worry that the company could lose more customers in an economic downturn.

Going private will enable Bright Horizons to focus on long-term growth without the pressure to hit quarterly earnings targets, Junker said.

Bright Horizons and Bain also have a history, Lissy said. Bain was one of the first investors in the company, and the same Bain executive has served on the company's board since its founding, seeing it through the transition from private to public in 1997, and now back to private.

"The original people who invested in our vision and our dream are going to sponsor us now," Lissy said.

Bain officials dismissed concerns about the debt load, saying the company generates enough cash to cover its interest payments and to plow back into the business. They said the company would benefit from Bain's advice.

"We believe the company continues to have bright prospects," said Andrew Balson, a managing director at Bain Capital. "We will invest in the long-term growth of the business, not change the successful model."

SEIU officials remain skeptical. "We hope they stick to their commitment to quality," Cook said. "We'll be watching."

And if the Bain and Bright Horizons managers don't keep their word, the union will be quick to tell the public. It has staged several actions around the Carlyle Group's $6.3 billion buyout of Manor Care, including last month's protest of a speech given by Carlyle Group co-founder David M. Rubenstein in Baltimore.

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