Quicker pension scheme analysis – a deals catalyst?

The perceived risk associated with Defined Benefit (DB) pension schemes continues to be a significant turn-off for many deal makers. A lot of potential targets have fallen at the first hurdle merely by being identified as having a DB pension scheme. For many, that is enough to rule out a closer look. And even for those deals which progress to a diligence phase, many are scuppered on the back of failed negotiations over the pension scheme.

In their paper “Corporate Pension Plans as Takeover Deterrents”, Jo~ao F. Cocco and Paolo F. Volpin show that DB schemes act as a takeover deterrent. More precisely, UK firms that sponsor DB schemes are less likely to be the target in an acquisition, and conditional on being targeted, the deal is less likely to be completed.

One of the challenges with DB schemes in a deal context is that they do not routinely produce up-to-date financial analysis that investors and lenders feel they can rely on. Insightful financial analysis has not typically been available in a deal timeframe and the information that is available is often hard to interrogate. It can take many weeks to undertake a full and thorough pension scheme valuation and analysis.

The result is that investors and lenders feel less able to understand pension costs and risks to the same degree as other business risks, so they naturally approach businesses that have DB plans with caution. Good deals may be being missed as a result. Speeding up the financial analysis available on pension schemes could give deal doers’ a renewed appetite to consider companies with DB pension schemes. This is where Skyval comes in. Skyval is a software tool that routinely produces up-to-date pension scheme analysis in a format which investors understand.

A CFO recently said of Skyval “We recently considered an acquisition in the UK where the target company sponsored a DB pension scheme which was material to the deal....Skyval technology was able to meet our tight timetable required to meet the bid submission deadlines. It was also instrumental to have market sensitivities and other analytics that helped us better understand the pension scheme risks in the context of the deal - providing us with more detail than a simple commentary on the due diligence information. Skyval enabled us to obtain quick and simple yet accurate updates to the pension scheme position over time without the need for additional time-consuming manual recalculations.”

So, have you been put off an acquisition or merger due to a DB pension scheme? Do you think your DB pension scheme has put off potential acquirers?

Let us know your thoughts below.

Adam Sutton | Director, Technology, Media & Telecommunications
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