Widespread economic pressure — including pay, inflation, and the ongoing cost of living crisis — has increased the visibility of unions and other employee representative bodies. As the number of workers interested in union membership grows and the frequency of strikes surges in the UK and elsewhere, the role and importance of unions in an M&A process (as well as beyond any deal closing), should not be overlooked.
In June 2022, the Trades Union Congress noted that online enquiries into union membership had risen 700% since members of the National Union of Rail, Maritime, and Transport Workers took strike action over pay, jobs, and conditions. UK union activity tends to be sector-linked, with membership highest in the heavy industry, manufacturing, transport, automotive, shipping, healthcare, and education sectors. However, general increased interest in union membership in the UK, plus recent trends, particularly in the US, towards unionisation of hospitality and technology businesses, could mean that unions become more commonplace in a wider variety of private sector industries.
Active trade unions are continuing as a theme this year, with NHS workers, teachers, and civil service staff taking strike action in the first quarter of 2023. In view of this, the UK Parliament has introduced draft legislation which, although at an early-stage, demonstrates that union activity is garnering major governmental focus and highlights the growing prominence of unions in the UK. M&A dealmakers must therefore take unions into appropriate account, given their increasing recognition and role in representing the rights of workers to secure fair pay and working conditions.
If a union or other employee representative body (e.g., works council or staff forum) is recognised by a target group, acquirers scoping a transaction should understand early in the process if any terms, including those relating to pay or redundancy, are collectively negotiated; whether any strikes have been made or threatened; and/or whether a transaction will or might trigger any information/consultation rights. Deal teams should also consider any legal consultation rights that employees may have, irrespective of whether there is any union/works council recognition — for example, on an asset deal, employees in many jurisdictions will have the right to be informed and consulted with in relation to a proposed sale.
Engagement can be time-intensive and could impact transaction structure and deal timetable. For example, if a works council is recognised in France, a “put-option” structure may need to be used. Unions/works councils could also request assurances relating to an acquirer’s plans post-acquisition (including in respect of business restructurings) so far as they relate to workers. Potential restrictions from such engagements will sometimes need to be factored into deal pricing.
Positive and proactive engagement will typically be well received by unions/works councils. Therefore, if unions must be consulted with (or might otherwise become interested in a transaction given its potential impact on employees), acquirers should ensure that they approach engagement in this way. Doing so facilitates successful talks and builds a positive relationship with workers at an early stage.
Whilst union/works council presence is relevant in any M&A transaction, employee representative arrangements can be particularly relevant in UK public-to-private deals. The UK Takeover Code requires certain documents about the transaction to be made available to employees or their representatives, and also provides a right for employee representatives to publish an opinion about the transaction and its impact on employment/employee matters. Early diligence will enable acquirers to plan effectively.
Other stakeholders, including the trustees of any defined benefit pension scheme, may lend their support to concerns raised by unions (and vice versa). If a union and/or pension trustees raise a concern in respect of a transaction, often the other also will. This is generally because there will often be at least some overlap in membership of a target’s union and its defined benefit pension scheme. Given the need for a shareholder vote in respect of a UK public takeover, material concerns from a union and/or other stakeholders, including trustees of a defined benefit pension scheme, could prove to be problematic for an acquirer, as it may become a gating item to transaction approval and/or closing.
In a re-organisation or carve-out transaction, any union/works council involvement is likely to mirror that of a standard M&A process, and will depend on the nature and structure of the transaction itself. If any such carve-out will or is likely to have consequences for employees, M&A deals teams should consider any potential union/works council arrangements and all of the considerations applicable to a more standard M&A process (covered in this article) should be borne in mind and appropriate actions taken.
Whilst navigating union/works council arrangements can certainly add more work to an M&A process, the good news for acquirers is that UK unions cannot unilaterally block transactions, unlike in some EU jurisdictions such as the Netherlands. The presence of a union/works council will not always be problematic in a deal scenario, but those involved in M&A transactions in which a target has an active union/works council should, of course, be mindful of the need to be sensitive to the union/works council engagement process. However, they need not fear embarking on a transaction in which employee representative bodies are recognised.