Case study

Buying a multinational business and taking on its pension commitments

Pensions & benefits Corporate activity and M&A DB pensions Corporate strategy

The background

Our client was looking to acquire another multinational organisation. For any deal to proceed in this case, the business was being required to take on all the pension commitments of the potential acquisition target. This included the associated defined benefit risks and costs.

Our solution

We provided a high level red flag report at the beginning of the process which indicated that the UK obligations being acquired could be subject to a material deterioration in funded status at the next triennial valuation (with knock-on implications for cash contributions). In addition, our analysis highlighted that the accounting implications on acquiring a number of the international arrangements in question would not be cost-neutral for our client once differences in international and local accounting standards had been allowed for. This would have meant the disclosed pension obligations would increase overnight following acquisition relating to the vendor’s disclosed position.

The results

The acquisition proceeded but our client achieved a materially lower purchase price to take account of the pension risks, shortfalls, and costs being taken on. Our client also had full visibility of the costs and risks they would be responsible for, making it a no-surprises position both at and following the transaction.