Union Considerations in M&A Transactions - Navigating Organized Labor During Ownership Changes

The collective bargaining agreement sat on the conference table like an unexploded ordnance. Three weeks into due diligence, the buyer’s attorney had finally reviewed it and discovered a change-of-control provision that could trigger $2.3 million in severance payments upon closing. For this $18 million transaction, that represented nearly 13% of the purchase price. This material finding should have surfaced in the first week, not the third. The seller hadn’t mentioned it. The buyer hadn’t asked. And now a deal that penciled beautifully was facing a seven-figure surprise that threatened to crater the transaction entirely.

Executive Summary

Union considerations represent one of the most underestimated complexity factors in middle-market transactions. When a target business has organized labor, the transaction inherits not just employees but contractual obligations, legal requirements, and ongoing relationship dynamics that affect both deal execution and post-close operations.

Collective bargaining agreements create binding obligations that survive ownership changes through successorship doctrine. These agreements contain provisions that can materially impact transaction economics and post-close operational flexibility: change-of-control triggers, severance requirements, work rule restrictions. According to the Bureau of Labor Statistics’ Union Members Summary released January 2025, union membership stood at 9.9% of wage and salary workers in 2024, down from 20.1% in 1983. This aggregate figure masks significant concentration in specific industries where middle-market sellers operate. The same BLS data shows manufacturing at approximately 7.9% union density, transportation and utilities exceeding 14%, and construction at approximately 11.9%.

This analysis applies to US transactions under the National Labor Relations Act. For sellers with unionized workforces, proper transaction preparation requires understanding how union considerations affect marketability, identifying CBA provisions that create deal friction, and developing strategies for managing union relationships through ownership transitions. The National Labor Relations Act creates notification and bargaining obligations that, if mishandled, can result in unfair labor practice charges, deal delays, or damaged union relationships that complicate post-close operations.

This article examines the union transaction considerations that affect middle-market deals, identifies the CBA provisions that most commonly create complications, and provides frameworks for managing these workforce factors through ownership changes.

Introduction

Among the various workforce considerations that affect business sales, union representation stands apart in its structural complexity. Unlike at-will employment relationships that transfer relatively seamlessly, unionized workforces come with contractual obligations, legal frameworks, and institutional relationships that create both opportunities and challenges for transactions.

The fundamental issue is straightforward: collective bargaining agreements are contracts, and contracts create rights and obligations that don’t simply disappear because ownership changes hands. Successorship doctrine (the legal framework governing what happens to CBAs when businesses are sold) creates obligations that buyers must understand before closing and manage effectively afterward. Successorship determinations are highly fact-specific, with outcomes varying significantly based on specific circumstances that courts and the NLRB evaluate case by case.

For middle-market businesses with $2M-$20M in revenue, union considerations typically arise in manufacturing, transportation, construction, healthcare support services, grocery and food processing, and hospitality operations. The impact varies significantly across this revenue range. A $3M manufacturing company with 25 union employees faces different dynamics than a $15M logistics operation with 150 represented workers. Smaller companies often have single-location workforces with one CBA, while larger middle-market businesses may operate multiple facilities with different union locals and separate agreements.

The challenge intensifies when buyers lack union experience. Private equity firms focused on professional services may have no institutional knowledge about CBA management. Strategic acquirers from non-union environments may underestimate the operational constraints that collective bargaining creates. Even experienced buyers sometimes miss CBA provisions that create unexpected obligations.

Proper preparation transforms union considerations from deal obstacles into manageable transaction factors. Understanding successorship obligations, identifying problematic CBA provisions, managing NLRA requirements, and maintaining constructive union relationships through ownership transitions: these capabilities separate smooth transactions from complicated ones.

Understanding Successorship Doctrine and Its Transaction Implications

Successorship doctrine determines whether and how collective bargaining obligations transfer to new owners. This legal framework, developed through decades of National Labor Relations Board decisions and court rulings, creates the foundation for understanding union considerations in transactions.

The threshold question involves whether a buyer becomes a “successor employer” under labor law. Successorship analysis examines factors including operational continuity and workforce composition, with outcomes varying significantly based on specific circumstances. Generally, successorship may attach when there’s substantial continuity in the business operation and when a majority of the buyer’s workforce in an appropriate bargaining unit consists of the seller’s former union employees. But NLRB and courts examine multiple factors beyond these basic elements, including the nature of operations, product or service offerings, customer base, and facility usage. When successorship attaches, the buyer inherits the bargaining relationship and potentially certain contractual obligations.

Burns Successorship creates the basic framework. Under the Burns doctrine established by the Supreme Court in NLRB v. Burns International Security Services (1972), a successor employer must recognize and bargain with the union but is not automatically bound to assume the predecessor’s collective bargaining agreement. The successor can set initial employment terms unilaterally, provided those terms don’t discriminate against union employees.

Perfectly Clear Successorship creates stronger obligations. As established in NLRB v. Burns and refined in subsequent cases, when a buyer plans to retain the predecessor’s employees and this intention is “perfectly clear” before the transaction closes, the buyer cannot unilaterally change employment terms. The buyer must either adopt the existing CBA or bargain with the union before changing terms. This doctrine catches buyers who recruit seller employees before closing without considering the labor law implications.

Contract Assumption takes the analysis further. Some buyers explicitly assume CBAs as part of transaction agreements. Others become bound through contract language: change-of-control provisions, successors-and-assigns clauses, or assumption requirements that make CBA adoption a condition of the transaction. Understanding these distinctions is important for proper deal structuring.

Critical Warning: Asset Purchases Do Not Automatically Avoid Union Obligations. A common misconception holds that asset purchases eliminate successorship concerns. This is wrong. While stock purchases transfer the employing entity itself, making CBA assumption automatic absent specific provisions otherwise, asset purchases still trigger successorship analysis. Burns and Perfectly Clear doctrines apply to asset purchases based on operational continuity and workforce retention. Buyers who structure transactions as asset purchases believing this eliminates union considerations may face unexpected bargaining obligations post-close.

Alternative Transaction Structures can sometimes mitigate union-related complications, though each involves tradeoffs. Some buyers use double-escrow arrangements that address successorship timing issues. These work best when precise timing control is needed but typically add $15,000-$30,000 in transaction costs. Others structure transactions as management buyouts with existing leadership, preserving relationship continuity but potentially limiting sale proceeds compared to competitive strategic processes. In certain cases, buyers negotiate with unions pre-closing to modify problematic CBA provisions as a condition of proceeding, though this approach requires union cooperation that cannot be guaranteed. Sellers should understand these options when evaluating potential transaction structures.

For sellers, understanding successorship implications affects transaction marketability. In our experience advising middle-market transactions, buyers often apply valuation discounts for businesses with complex union considerations, depending on CBA terms, pension obligations, and relationship quality. Buyers with union experience may view these obligations differently than union-naive purchasers. Providing clear information about successorship status and CBA obligations helps buyers assess transactions accurately.

Critical CBA Provisions That Affect Transaction Economics

Collective bargaining agreements contain numerous provisions, but certain categories consistently create transaction complications. Sellers should review their CBAs specifically for these issues before going to market, while buyers should prioritize these provisions during due diligence. The complexity of this review varies significantly based on CBA provisions, multi-employer pension participation, and relationship history.

Change of Control Language

Many CBAs contain provisions specifically triggered by ownership changes. These provisions might require union notification, consent, or approval before transactions can close. They might accelerate vesting of benefits, trigger severance payments, or create guaranteed employment periods that limit post-close restructuring flexibility.

The most problematic change-of-control provisions create deal-contingent obligations: payments or requirements that only arise because of the transaction itself. These provisions can add significant costs that weren’t reflected in historical financials and may not be obvious without careful CBA review. In middle-market transactions, change-of-control severance provisions vary considerably by industry context. Manufacturing CBAs typically provide one to two weeks per year of service, while transportation and utilities CBAs often specify three to four weeks per year of service. For a company with 50 employees averaging 10 years tenure and $55,000 average compensation, this could translate to obligations ranging from $500,000 to $2 million depending on specific provisions. Sellers should identify these provisions early and factor them into transaction planning.

Severance and Layoff Provisions

CBAs often contain severance provisions that exceed statutory requirements significantly. These provisions might guarantee substantial severance payments for any terminations within specified periods, create enhanced severance for terminations related to ownership changes, or establish recall rights that limit workforce restructuring options.

Layoff provisions often include seniority-based retention requirements, bumping rights that complicate position eliminations, and recall obligations that extend for years after layoffs occur. For buyers planning workforce changes post-close (whether for restructuring, consolidation, or operational improvements) these provisions directly affect implementation timelines and costs. A manufacturing buyer planning to consolidate two facilities post-close discovered that bumping rights in the acquired company’s CBA would require retaining senior employees even when their specific positions were eliminated. This extended the consolidation timeline by eight months and increased transition costs by $400,000.

Work Rules and Operational Flexibility

CBAs establish work rules governing job classifications, scheduling, overtime assignment, subcontracting, and operational procedures. These provisions can limit operational flexibility in ways that affect integration planning and synergy realization.

Job classification restrictions might prevent workforce flexibility that buyers assume they’ll have post-close. Subcontracting limitations might prevent outsourcing strategies. Scheduling and overtime provisions might constrain operational efficiency initiatives. Buyers should understand these restrictions before closing rather than discovering them during integration.

Pension and Benefits Obligations

Multi-employer pension obligations represent particular transaction risks. Withdrawal liability (the obligation triggered when employers leave multi-employer pension plans) can create substantial financial exposure that significantly impacts transaction economics. Under the Multiemployer Pension Plan Amendments Act (MPPAA) and PBGC regulations, withdrawal liability is calculated based on the employer’s proportionate share of unfunded vested benefits, determined by contribution history over the preceding years. For middle-market companies, actual liability depends heavily on plan funding status, contribution history, and the number of remaining contributing employers. In our experience, liabilities typically range from $200,000 for smaller participants with limited contribution history to $5 million or more for companies that have been significant contributors to underfunded plans over extended periods.

The Pension Benefit Guaranty Corporation’s 2024 Annual Report indicates that while the multiemployer program has improved significantly, a meaningful percentage of plans remain in critical or declining status. Sellers participating in these plans should obtain actuarial assessments of potential withdrawal liability before marketing their businesses, as this figure materially affects transaction economics.

Healthcare and benefit provisions in CBAs often exceed what buyers provide to non-union employees. Maintaining separate benefit structures creates administrative complexity, while modifying benefits requires bargaining and potentially impasse procedures that delay changes buyers might assume they can make unilaterally.

Successors and Assigns Clauses

CBAs commonly include “successors and assigns” language purporting to bind future owners to agreement terms. While the legal effect of this language varies based on transaction structure and other factors, these clauses create at minimum an obligation to analyze whether assumption is required and potentially create binding obligations that eliminate buyer flexibility.

NLRA Notification and Bargaining Requirements

The National Labor Relations Act creates legal obligations regarding union notifications and bargaining that affect transaction execution. Mishandling these requirements can result in unfair labor practice charges, deal delays, and damaged union relationships.

Effects Bargaining Obligations arise when ownership changes affect terms and conditions of employment. While successors may have latitude to set initial terms in some circumstances, any changes to established terms generally require bargaining. Buyers who assume they can make changes immediately post-close often discover that bargaining obligations delay their plans significantly: six months to two years when negotiations are complex, particularly if multiple CBAs are involved or if impasse leads to mediation or arbitration.

Notification Requirements vary based on CBA language and the specific nature of transactions. Some CBAs require advance notification of potential ownership changes (typically 30 to 90 days before closing). Others require notification upon reaching agreement but before closing. Failure to comply with notification provisions can constitute unfair labor practices and may provide unions with grounds to challenge transactions. Unfair labor practice charges, while often ultimately resolved in favor of employers, can delay closings by three to six months and create uncertainty that affects buyer commitment.

Information Requests from unions during transactions require careful handling. Unions have rights to information relevant to their representational duties, and transaction-related information requests are common. Determining what information must be provided (and what can legitimately be withheld) requires understanding both the legal requirements and the practical implications of disclosure.

Decision Bargaining Versus Effects Bargaining creates important distinctions. Employers generally don’t have to bargain over the decision to sell a business. That’s a fundamental entrepreneurial decision. But employers must bargain over the effects of that decision on represented employees. Understanding this distinction helps sellers manage union interactions through transaction processes.

Timing Considerations affect transaction execution. Bargaining obligations and notification requirements create timelines that must be integrated into transaction schedules. Union-related due diligence typically adds two to four weeks to standard timelines, particularly when actuarial analysis of pension obligations is required. Deals structured without considering these requirements sometimes face delays when union-related obligations take longer than anticipated.

Managing Union Relationships Through Ownership Transitions

Beyond legal requirements, practical relationship management affects transaction success. Unions are institutional actors with interests, concerns, and capabilities that warrant strategic consideration throughout transaction processes. While structured approaches help, union responses often depend on local political dynamics, leadership personalities, and broader labor relations context that sellers cannot fully control.

Pre-Market Preparation

Sellers should assess their union relationships honestly before going to market. Stable, professional relationships (characterized by resolved grievances, on-time contract negotiations, and minimal arbitration activity) are associated with smoother transactions, though multiple factors affect transaction complexity including general management quality and business fundamentals.

Contentious relationships, pending grievances, or unresolved disputes create risks that buyers will discover during due diligence and factor into their evaluations. Sellers with problematic union relationships should consider whether addressing these issues pre-market improves transaction outcomes, recognizing that some relationship damage cannot be quickly repaired.

CBA timing matters significantly. Agreements expiring within 12 months of expected transaction timelines often create negotiation obligations that complicate deals, though timing sensitivity varies by industry and specific CBA provisions. Agreements with two or more years remaining provide stability but may include provisions that limit buyer flexibility. Understanding how CBA timing affects transaction dynamics helps sellers optimize their market timing.

Reviewing CBAs for transaction-related provisions before going to market allows sellers to address issues proactively. Provisions that create significant deal friction might be addressable through early bargaining. At minimum, understanding these provisions allows accurate representation to buyers and avoids surprises during due diligence.

Due Diligence Support

Sellers should prepare comprehensive union-related due diligence materials. This includes current CBAs, grievance logs, arbitration history, benefit plan documents, and any side letters or memoranda of understanding that modify CBA terms. Incomplete disclosure in union matters creates risks: both legal risks from misrepresentation and practical risks when issues surface later in transactions.

Providing buyers with context about union relationships helps them understand what they’re acquiring. Historical bargaining outcomes, strike history (including any work stoppages in the past decade), current relationship quality indicators, and key union personalities all affect post-close operations. Buyers with union experience particularly value this contextual information.

Anticipating buyer questions about union matters demonstrates preparation and professionalism. Sellers who can answer union-related questions knowledgeably create confidence. Those who seem unfamiliar with their own CBA provisions raise concerns about what else they might not know about their businesses.

Transition Management

Communication strategies for union stakeholders require careful development. When and how to communicate about transactions affects union responses. Premature disclosure can create problems (including potential WARN Act considerations and employee anxiety) but unions that learn about transactions from external sources rather than from management often react more negatively than those who receive appropriate communication.

Communication timing should reflect specific relationship dynamics. Stable relationships typically support early engagement, while adversarial relationships may require more formal approaches that rely on legal frameworks rather than relationship dynamics. A structured approach for stable relationships typically includes initial notification to union leadership shortly before or simultaneously with broader workforce communication, followed by detailed discussions about transition plans, and finally ongoing updates as closing approaches. This sequencing respects the union’s institutional role while maintaining appropriate confidentiality.

Union leadership engagement during transitions often affects outcomes significantly, though this varies based on specific circumstances and personalities involved. Professional relationships built over time can provide foundations for constructive transition conversations, but relationship quality depends on consistent fair dealing rather than merely length of acquaintance.

Addressing workforce concerns about ownership changes (job security, benefit continuation, working condition changes) affects both employee morale during transitions and union receptiveness to new ownership. Proactive communication that addresses legitimate concerns while maintaining appropriate confidentiality helps manage transitions constructively.

When Transitions Become Challenging

Not all union transitions proceed smoothly. When unions oppose transactions, complications can include work slowdowns, unfair labor practice charges, and media campaigns that damage buyer relationships and create closing uncertainty.

A Midwest manufacturing transaction encountered significant complications when the union local opposed the sale, concerned that the buyer planned to relocate production. Despite legal authority to proceed, the resulting work-to-rule campaign during the transition period reduced productivity by 30% and delayed integration milestones by four months. The buyer ultimately succeeded but at higher cost than projected.

A transportation company sale triggered withdrawal liability negotiations that extended eight months post-closing, with the final liability assessment exceeding initial estimates by 40%. The seller had guaranteed a liability cap in the purchase agreement, resulting in a $1.2 million escrow holdback claim.

These cases illustrate that union considerations can create material transaction complications even when legal requirements are followed precisely. Sellers should prepare for these possibilities rather than assuming smooth transitions are guaranteed.

How Buyers Evaluate Union Considerations

Understanding buyer perspectives helps sellers position their businesses effectively. Different buyer categories approach union considerations distinctively, and sellers benefit from understanding these perspectives.

Strategic Acquirers with Union Experience often view union considerations as manageable transaction factors rather than deal obstacles. These buyers have institutional knowledge about CBA management, established labor relations capabilities, and realistic expectations about union operations. They may actually value stable union relationships as indicators of workforce quality and management professionalism. A meaningful portion of strategic acquirers in manufacturing and transportation sectors have existing union operations and fall into this category.

Strategic Acquirers Without Union Experience may view union considerations with significant concern. Unfamiliarity breeds uncertainty, and uncertain buyers discount valuations or avoid transactions entirely. Sellers marketing to union-naive buyers should expect more extensive education requirements and potentially longer due diligence processes. These buyers typically require detailed explanations of CBA provisions and may request representations and warranties specifically addressing union matters.

Private Equity Firms vary dramatically in their union comfort levels. Platform-focused PE firms with portfolio companies in manufacturing, distribution, or transportation often have partners with direct union experience and operational teams familiar with CBA management. Generalist PE firms or those focused on technology, healthcare services, or professional services typically lack relevant experience. Understanding specific PE firm backgrounds helps sellers target buyers most likely to value their businesses appropriately.

Financial Sponsor Concerns often focus on exit planning. PE buyers must consider how union factors will affect their eventual exit: whether union considerations will similarly affect their sale process and buyer pool three to seven years later. This forward-looking analysis influences both initial interest and valuation approaches.

Valuation Impacts from union considerations take multiple forms. Direct cost impacts (wages that often exceed non-union equivalents, more comprehensive benefits, pension obligations) affect financial projections. Operational flexibility limitations affect synergy assumptions, with buyers sometimes reducing synergy projections significantly for businesses with restrictive work rules. Transaction execution risks from union-related complications affect deal certainty assessments. Marketing strategies that target buyers with union experience may generate better outcomes than broad market approaches, though buyer selection criteria and market conditions also significantly affect outcomes.

Actionable Takeaways

Review Your CBA Thoroughly Before Going to Market. Identify change-of-control provisions, severance triggers, successors-and-assigns language, and any other provisions that create transaction-related obligations. Understanding these provisions before buyers discover them allows proactive management rather than reactive damage control.

Assess Your Union Relationship Honestly. Stable, professional relationships are associated with smoother transactions, though multiple factors beyond union relations affect transaction complexity. Contentious relationships, pending disputes, or historical problems create due diligence concerns. Address relationship issues before marketing if possible, or at minimum prepare accurate representations about relationship status.

Understand Your Pension Obligations. Multi-employer pension withdrawal liability can create substantial financial exposure. The actual amount depends on plan funding status and your contribution history, but middle-market participants should expect potential liabilities ranging from $200,000 to several million dollars. Single-employer plan funding status affects buyer obligations. Get professional actuarial analysis of pension-related transaction impacts before setting valuation expectations.

Consider CBA Timing in Transaction Planning. Agreements expiring during transaction timelines often create complications. Freshly negotiated agreements with two-plus years remaining typically provide stability. Time your transaction process with CBA cycles in mind.

Prepare Comprehensive Due Diligence Materials. Buyers will review CBAs, grievance history, arbitration awards, and benefit plan documents. Having these materials organized and readily available demonstrates professionalism and accelerates due diligence.

Target Buyers Appropriately. Buyers with union experience often evaluate unionized businesses more favorably than union-naive purchasers. Marketing strategies that identify experienced buyers may generate better outcomes than broad market approaches.

Engage Professional Support Early. Labor law complexities warrant specialized legal counsel during transactions. Engage labor counsel before marketing to identify issues proactively rather than waiting for due diligence complications. Specialized labor counsel typically adds $25,000-$75,000 to legal costs for middle-market transactions, depending on complexity. This is a worthwhile investment to avoid costly surprises.

Conclusion

Union considerations add complexity to middle-market transactions, but complexity isn’t insurmountable. Sellers who understand successorship obligations, identify problematic CBA provisions, manage NLRA requirements appropriately, and maintain constructive union relationships can execute successful transactions despite organized labor factors.

The key lies in preparation and transparency. Surprises damage transactions: the severance provision discovered late in due diligence, the pension liability revealed during financing processes, the union relationship problems that surface through buyer reference calls. Proactive identification and honest representation of union considerations prevents these surprises.

For buyers, union considerations represent due diligence imperatives rather than transaction obstacles. Proper evaluation of CBA provisions, accurate assessment of successorship status, and realistic planning for post-close labor relations allows buyers to transact confidently with unionized businesses.

The $2.3 million severance surprise that opened this article ultimately didn’t kill that deal, but it did reduce the purchase price by $1.8 million, extend the timeline by six weeks, and damage trust between parties. A different outcome was possible. With proper preparation, that provision would have been disclosed upfront, factored into pricing from the start, and addressed constructively rather than discovered disruptively.

That’s the opportunity union considerations present: transform potential complications into manageable transaction factors through preparation, professionalism, and appropriate expertise.