Steve Swirsky Quoted in “Where to Turn When Portfolio Company Workers Strike”

Steven M. Swirsky, Member of the Firm in the Employment, Labor & Workforce Management practice, in the firm’s New York office, was quoted in Middle Market Grown, in “Where to Turn When Portfolio Company Workers Strike” by Carolyn Vallejo.

Following is an excerpt:

Labor unions again made U.S. headlines earlier this year, when the Supreme Court agreed to review a lower court ruling in a case involving union organizing efforts at a Tennessee Starbucks location. The case reached the court months after Starbucks employees at hundreds of locations across the country went on strike, organized by Starbucks Workers United, after unionization efforts at several stores stalled in the collective bargaining phase.

The Starbucks case is far from the only union-related headline to have reached front pages in the last year or so. Bureau of Labor Statistics analysis finds U.S. labor union strikes hit their highest volume in 23 years last year, involving workers in industries spanning food service to automotive, and healthcare to Hollywood.

Experts say they’re not surprised by the trend. “We are seeing a much greater level of interest on the part of employees who are not represented by unions and seeking representation,” says Steve Swirsky, a shareholder and co-chair of the Labor Management Relations practice group at law firm Epstein Becker & Green. He points to COVID-era strike activity that captured the nation’s attention and exposed more employees to the unionization opportunity. …

As strike activity proliferates, acquirers across sectors are having to educate themselves on evolving worker concerns and the resulting strike risks they create.

For private equity investors, that risk can impact their ability to make changes and build value within a portfolio company. Swirsky says potential acquirers may be caught off-guard by ancillary impacts from labor strikes, and more broadly by labor disputes at unionized businesses. In cases of asset purchases, buyers may not be bound to a seller’s existing collective bargaining agreement, allowing the new owner to renegotiate terms with unions. But investors can still face hurdles when working to implement changes at an acquired company, depending on the extent of a union’s involvement, and must weigh the benefits of making changes against initiating labor disruption.

Swirsky recalls one case in which an acquirer sought to exit a multi-employer pension plan that a seller had been contributing to, because it would create potential withdrawal liability down the road. While that action may fit an investor’s growth model, it could also become a flash point with the union. “What that employer realized is that it wasn’t worth it on this go-around of negotiations to draw that line in the sand and risk a strike,” he says.

In another instance, an employer wanted to exit a health plan at a unionized business. “I sat down with the client and talked through the realities of how important that health plan is to a union and to the relationship it has with employees,” Swirsky notes. Ultimately, he says, the financials revealed exiting the health plan was not worth the strike risk. …

And when it comes time to sell a company, mitigating risks to quell buyer concerns is just as important. “If you’re the seller, you know what types of liabilities are going to be triggered,” notes Swirsky. “Are there commitments that have been made in terms of severance that the seller may have to pay? Is there going to be a withdrawal from the pension plan, which is going to create a significant liability for the sellers that may or may consume a significant part of the purchase price? These are all factors that go into it.” …

Still, M&A activity in sectors with high union density is happening. With dealmaking volume expected to climb this year, opportunities to invest in businesses with a unionized workforce could climb with it.

Private equity firms are paying attention, and while sponsors may initially be spooked, there are resources at their disposal to mitigate risk. “There is probably a greater level of awareness (of strike risk), and what I’m seeing is, people don’t look at this as a one-size-fits-all issue,” says Swirsky. “There’s greater concern about it, but that doesn’t mean acquisitions are not taking place at unionized businesses.”