Ideal Magazine (mei 2006)

Pension liabilities are now one of the biggest issues for potential acquirers – and in a rapidly changing environment, accurate information is essential. Speaking at Super Return, Eric Warner, the M&A partner at Mercer, explained that estimates indicate it would cost more than £300bn to buy out every corporate defined-benefit scheme in the UK. In Germany, pensions are often completely unfunded, so the position is even worse. “This does not mean every company with a definedbenefit pension scheme is out of bounds. But bidders must know what their potential liabilities are before sitting down to negotiate with vendors,” he said. Mercer assesses the pension liabilities of offeree companies in Europe. In a recent transaction, an Italian conglomerate was selling a multinational and disclosed a pension liability of €90m. Mercer’s due diligence revealed the total liability was €280m on an international GAAP basis – and the price was duly negotiated down. “In Germany, the situation is acute. In one deal last year, the actual liability was 72 times higher than the amount factored into the balance sheet,” said Warner. “Huge discrepancies between the vendor’s view of liabilities and the bidder’s are not rare.” Confidence that the information you have is accurate is clearly vital for potential acquirers. The price can occasionally be reduced by up to 50 per cent or more as a result of proper due diligence. In many cases, a deal depends on radically altering the pension arrangements of the offeror company. Mercer not only provides guidance about potential pension liabilities but it also helps bidders to mitigate them.