Labor unions

November 27, 2019

by a searcher from The University of Michigan - Stephen M. Ross School of Business in Santa Clarita, CA, USA

Has anyone bought a company who's employees participate in labor union? I have zero experience with labor unions but hear it can get burdensome and troublesome for owners. Any thoughts or experiences?

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Reply by an investor
from Hobart and William Smith Colleges in Dorset, VT, USA

I assume in the US? I have run many union shops, some are wonderfully collaborative and others are completely destined for self-inflicted failure. I'd spend a lot of time talking and listening to the union leadership and the local HQ guys. There are North American unions (un-named) that really don't mind driving a company into bankruptcy every year or so, just to make a point and let the industry know they're not messing around. Others will be driven by local idiots who are just dangerous, like a kid playing with a loaded gun. Enough conversations should let you know where they are on that spectrum. You have as much chance at changing them with equity as changing the nature of a rattlesnake. Bankruptcy courts are littered with formerly profitable ESOP companies.
But, other union situations are amazing and an absolute benefit to the (very wise and crafty) entrepreneur. You don't end up there by accident, it takes avoiding toxic situations and having a plan for the healthy ones. Good luck

Reply by an investor
from University of Notre Dame in Pittsburgh, PA, USA

Sure. Can be great/no issue. Can be a disaster. Completely depends on the company, employee base, how involved the union is, and how the existing owners have interacted with them in the past. Whoever your deal attorney - their law firm should have labor/employment/benefits focused lawyers that can assist if you see a target. Often union shops are associated with legacy pensions plans which adds another lawyer of complexity as often existing owners have not contributed enough historically and plans are underfunded so its a bit of a hidden liability to understand early that many sellers don't appreciated. We have a deal under LOI with 750 employees, 5 locations, two different unions, and a $15 million underfunded pension liability - every deal has risks just another one to understand and account for..

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