Buying the Plant: Keeping a Union Workforce Intact Through an MBO

The situation

Huong had run the plant for close to thirty years. It made precision metal components for the automotive and industrial equipment sectors, employed around 140 people on the shop floor and another two dozen in the office, and had operated under the same union certification for most of that time. When Huong decided to retire, she did not want to sell to a competitor who might close the Stoney Creek operation and consolidate production elsewhere. She wanted to sell to the people already running the place.

That turned out to be Cherise and Thao. Cherise had built and sold her own manufacturing business years earlier and had come out of retirement to run operations for Huong, effectively acting as general manager for the last several years. Thao was an investment advisor who had helped Huong manage the company's finances informally and knew the business from the inside. Together they assembled a management buyout group — a deal in which the people already managing a company purchase it from the owner, usually with a mix of their own capital, outside financing, and often a loan from the seller herself. The price the parties settled on, after independent valuation, sat in the range of $65 million, reflecting the plant's equipment, its customer contracts, and a workforce with decades of institutional knowledge that Cherise and Thao considered the company's most valuable asset. Treadstone Law was retained by the buyout group to structure and close the transaction.

The people problem

Most of the early deal conversation focused on financing: how much Cherise and Thao would contribute personally, how much an outside lender would provide against the plant's equipment and receivables, and how much of the purchase price Huong would agree to leave in as a vendor take-back note, secured against the business and repaid over several years. That work mattered, but it was not what kept Cherise up at night. What she wanted to know, before she put her own money into the deal, was what would happen to the collective agreement — the contract between the company and the union covering wages, seniority, benefits, and job security for the shop floor — once she and Thao owned the plant instead of Huong.

The answer depends entirely on how the deal is structured, and that is where the first mistake almost got made. The buyout group's outside lender had initially proposed an asset purchase — buying the equipment, contracts, and goodwill directly, rather than buying the shares of Huong's corporation — because it gave the lender cleaner security and let the buyers leave certain old liabilities behind. Cherise and Thao assumed, reasonably enough, that an asset purchase would let them negotiate a fresh start with the workforce: new terms, a clean slate, perhaps even a chance to bring in efficiencies the collective agreement made difficult under Huong's ownership. That assumption was wrong, and acting on it would have created exactly the labour relations problem the buyout group was trying to avoid.

Ontario's labour relations legislation includes what are generally called successor rights provisions. In plain terms, if a purchaser buys a unionized business and continues operating it in substantially the same form — same plant, same equipment, same customers, same type of work — the existing union certification and the existing collective agreement generally follow the business to the new owner, regardless of whether the deal is structured as an asset purchase or a share purchase. A buyer does not get to use an asset deal as a way to walk away from a collective agreement it does not like, provided the business carries on as a going concern. Buyers who assume otherwise, and who show up on day one announcing changed terms without going through the union, expose themselves to grievances, labour board complaints, and — in a plant this size, with a workforce this experienced — the real risk of a production-stopping labour dispute in the first weeks of ownership.

What we did

1. Confirmed the successor rights position before the deal structure was finalized. We advised Cherise and Thao that regardless of whether the transaction proceeded as an asset purchase or a share purchase, the collective agreement would almost certainly bind them as the new employer once the sale closed and the business continued operating. That reframed the financing conversation: the lender's preference for an asset deal could still work, but not on the assumption that labour terms would reset.
2. Reviewed the collective agreement in detail during due diligence. Our team read through the current agreement's wage grid, seniority provisions, pension obligations, and grievance history alongside the buyout group's own financial model, so Cherise and Thao understood exactly what labour cost structure they were buying into — not an estimate, the actual document that would govern the plant the day after closing.
3. Structured the purchase to make continuity explicit rather than assumed. The final agreement of purchase and sale, negotiated as an asset purchase for the lender's security reasons, included specific representations from Huong's corporation about the collective agreement's current status, no outstanding grievances of significance, and no side letters or informal arrangements with the union that were not in the written contract. It also included the buyout group's express assumption of the collective agreement as a condition of closing, so there was no ambiguity for the union, the employees, or a future labour board about who the employer was going forward.
4. Arranged early, direct communication with the union. Rather than let the sale become public knowledge through rumour on the shop floor, we recommended Cherise and Thao meet with the union's leadership before closing to confirm, in plain terms, that the collective agreement would continue unchanged and that the new ownership group included the plant's own general manager — someone the workforce already knew and trusted. That meeting did more to prevent disruption than any clause in the purchase agreement.
5. Addressed pension and benefits continuity separately. The plant's employees participated in a defined benefit pension arrangement tied to years of service. We confirmed with the plan administrator and Huong's corporation how service credit and vesting would be treated across the ownership change, so employees near retirement were not left uncertain about entitlements they had spent decades earning.
6. Built a post-closing employment relations plan into the deal timeline. Cherise and Thao committed, in writing to their own financing partners, to a ninety-day period of no material changes to shop floor terms beyond what the collective agreement already permitted, giving the new ownership group time to build trust with the workforce before proposing any operational changes.

The outcome

The deal closed at roughly $65 million, financed through a combination of the buyout group's own capital, a term loan secured against the plant's equipment and receivables, and a vendor take-back note from Huong repayable over several years. The collective agreement carried forward exactly as it existed under Huong's ownership, with the union and the employees notified well before closing rather than learning about the sale after the fact. No grievances were filed in the transition, and the plant did not lose a single production day.

Cherise credited the early meeting with the union as the single most valuable piece of advice she received during the deal — more valuable, in her words, than any of the financing negotiation. Employees who might otherwise have spent the weeks around closing worried about their jobs instead saw a familiar face, someone who had run the floor for years, now also holding an ownership stake. Thao's financing structure held together in large part because the lender's security was never disrupted by a labour dispute that a rushed or careless approach to the union relationship could easily have triggered.

A year after closing, the plant had retained essentially its entire workforce and had renewed one of its largest customer contracts, something Cherise attributed directly to the operational continuity the successor rights structure preserved. The buyout group did eventually propose changes to scheduling practices, but did so through the normal collective bargaining process at the contract's next renewal — the deliberate, unhurried route the ninety-day commitment had set them up to take, rather than a unilateral change imposed in the first anxious weeks of new ownership.

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