ABSTRACT

Pensions can be a significant concern in acquisitions and must be taken into account at an early stage since they may affect decisions as to both the price and the structure of the transaction. An employer cannot just walk away from its pension obligations. If an employer winds up a defined benefit (DB) pension scheme, it is obliged to fund the plan sufficiently to allow the trustees to buy insurance policies to cover all pension liabilities. To limit the risk of regulatory intervention, it is common practice for the buyer to seek clearance from the Pensions Regulator as a condition of closing. A buyer cannot rely on the seller's assessment of future liabilities and will normally use an actuary to carry out the due diligence on pension arrangements and to advise on negotiations. The importance, and nature, of pensions due diligence depends partly on the target's existing pension arrangements and partly on what the purchaser is intending post transaction.