DealLawyers.com Blog

Organized labor has scored some impressive victories in the past year, and unions’ increasing leverage in collective bargaining and enhanced organizing efforts have complicated the labor due diligence picture for prospective buyers in M&A transaction.  This excerpt from a recent LegalDive.com article addresses the implications of the current environment on labor due diligence at companies with unionized workforces:

Buyers already look at union issues in their due diligence reviews when the target company has a unionized workforce.  They typically look at the terms of the collective bargaining agreement, whether taking over a company would require them to become successors to the CBA and whether the relationship between the target company and its unionized workforce has been contentious.

In cases where the target company is bound to a multi-employer pension plan — a fund to which a group of employers contribute at a rate determined through collective bargaining with a union — a buyer will also look at the penalties the target company could incur for leaving the plan.

But buyers’ concerns have expanded, Foster said, driven in part by news of contentious collective bargaining negotiations or resulting contracts that seem unfavorable to employers.

“In the past, you might have been able to look at a mature union company’s collective bargaining relationship and see that it’s been pretty steady,” Foster said. “But now, when you look at the UAW [United Auto Workers] collective bargaining agreements, or the AMPTP [Alliance of Motion Picture and Television Producers] … you’re seeing much higher increases in overall compensation costs under those collective bargaining agreements and restraints on operations.”

Potential increases in costs such as these resulting from prospective changes in collective bargaining agreements may affect valuation and need to be identified and quantified during the due diligence process. However, the article points out that while most buyers of companies with unionized workforces are comfortable dealing with these issues, the impact on valuation of potential organizing efforts at non-unionized businesses is of greater concern during the due diligence process.

– John Jenkins