Pensions and Employee Benefit Due Diligence

Howden’s Pension and Employee Benefits Due Diligence (PEBDD) team has a wealth of experience in pre-sale and pre-acquisition due diligence and post-acquisition implementation solutions. Our main clients include private equity teams and corporates looking to either acquire a new company or make a divestment.

We offer expert advice on all pension plan and employee benefits matters, drawing on the skills and experience of specialists across the wider Howden business, including the recently acquired Barnett Waddingham actuarial and benefits team. Our geographic footprint means we can advise on pension and benefit arrangements internationally, with our pensions expertise covering both defined benefit (DB) and defined contribution (DC) arrangements. We give an unbiased and unentrenched view, unconstrained by being involved in the day-to-day operations.

Our diligence will highlight compliance with regulation, potential cost-saving and risk reduction actions, and - for buyers - the future strategic direction for the combined business in relation to pensions and benefits. We will then develop a red/amber/green (RAG) list of recommendations to enable our clients to execute the pre/post-closing strategy.

Benefits of PEBDD

Whether it’s a pre-acquisition buy-side due diligence project or a vendor due diligence project, we assess the costs, risks and opportunities inherent in the business’s pension and employee benefits arrangements. The valuation of the target may be impaired if the DB plan is underfunded without a credible plan for improving this, and without a clear strategy for the future. DC plans and benefits programs may have cost inefficiencies, compliance issues or be out-of-line with the industry, affecting the recruitment and retention of the right employees. 

These issues provide opportunities for both parties in a corporate transaction. As such, it is key for both sellers and buyers to focus on understanding the target’s pensions and benefits programme at the early stages of a transaction.

Structure and content of a Howden PEBDD report

At the outset, we will have a discussion with you with respect to the type of report that is required, i.e. red flag or a comprehensive report. As part of any project, we will:

• Analyse the DB pension plans to highlight:
  • The existing risks and cost inefficiencies, and potential actions to mitigate these.
  • A future strategy for the plans, in line with the wider corporate objectives and risk tolerances.
  • For buyers, potential adjustments to the purchase price to reflect the funded status of the plans.
  • For sellers, actions that can be taken to reduce any price adjustment.
  • The impact on the income statement and balance sheet for the buyers and sellers.
     
• Analyse the DC pension plans to highlight:
  • Compliance with local legislation and best practice.
  • The design of the plan and how it compares with those of competing businesses; in particular noting where contribution costs may be out of line with the market.
  • Potential improvements to drive better member outcomes and improve the member experience.
     
• Analyse the wider employee benefit program to highlight:
  • The current employee benefit insurance arrangements of the target and identify any uninsured and underinsured exposures.
  • The employee benefit claims experience and any adverse trends, identifying issues that could result in unexpected losses post-completion.
  • How the program compares with those of competing businesses; in particular noting where the benefit offering may be out of line with the market.
  • Ways in which employee engagement and appreciation may be improved, resulting in potentially reduced absenteeism and increased productivity.
     

Our report will bring all three strands together to give buyers and sellers a set of actionable recommendations that will reduce future risk and costs and ensure the employee value proposition is fit for purpose.

Case study: DB pension solution enables smooth sale

We were engaged by an overseas parent selling a UK entity which had a significant DB pension plan.

The purchaser and the plan’s trustees were pushing for a cash injection from the seller to enable the plan to be fully bought out with an insurer (or a reduction in the purchase price of an equivalent amount after adjustments for tax etc).

We worked with the parent company to find an alternative subsidiary company in its group to assume responsibility for the pension plan, alongside a strategy to mitigate future risks and costs.

This enabled the target company to be sold without any ongoing obligations to the plan and with the purchase price unaffected.

Get in touch with the team for more information

Jeananne Muir

Head of Transactional Diligence
+44 (0) 7523 916216
Email Jeananne

 

Simon Taylor

Partner & Head of Employer DB Consulting
+44 (0) 7885 976039
Email Simon

 

John Heatley

Head of Global and Strategic Accounts
+44 (0) 7923 23680
Email John

 

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