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Q. Do you think there’s a reluctance on the part of private equity firms to consider unionized acquisitions?
A: That’s probably true, but there is a way to do these deals that will be successful for the PE shop, the targeted business and the unionized workforce. Obviously there can be challenges to an acquisition of a unionized company: On the cost front, unionized companies generally have higher wages (likely to accommodate the union dues structure) and more costly benefits—including pension funds (sometimes underfunded)—as well as less flexible work rules than nonunion operations.
On the regulatory front, the National Labor Relations Board has become somewhat more supportive of unions and has been considering ways to limit what employers can do to address union influence. Unionized companies can also pose a management challenge when a private equity firm is the acquirer and wants to operate two related businesses separately as a “double-breasted” enterprise—that is, one company remains nonunion after the unionized company is acquired by the private equity firm and is operated separately. While such parallel arrangements may be challenged by the NLRB, these “laborized” transactions can be profitable ventures for private equity firms if they are aware of the issues they will be confronting and structure and manage their acquisitions accordingly.
George J. Nemphos is the chair of Duane Morris’ Global Corporate Practice Group and managing partner of the firm’s Baltimore office. He has extensive experience in mergers and acquisitions and securities law, representing both private and public companies, venture capitalists, angel investors and private equity firms.
Thomas G. Servodidio chairs Duane Morris’ Employment, Labor, Benefits and Immigration Practice Group and serves on the firm’s executive committee. For more than 20 years he has represented corporate clients and individuals in all aspects of employment law and labor relations.