Mergers and Acquisitions

Overview

Employee benefits are a complex matter in a leveraged buyout (LBO) or acquisition situation. It is imperative to review and evaluate the entire program, find any hidden problems, and decide on a strategy for solving the cost and balance sheet impact - usually all within a short period of time.

For an LBO or acquisition to run smoothly, issues of significant financial impact must be addressed. Improper analysis can lead to improper recommendations. In such cases, a qualified employee benefit consultant can make the difference between a smooth transition and a failure.

Possible Pitfalls

Areas of particular concern include: unfunded (or unbooked) post-retirement medical or life insurance liabilities and cost projections designed to minimize cost and hidden pension liabilities. These hidden pension liabilities are often associated with future liabilities, resulting from future pay or benefit increases applicable to prior services. Because of the huge financial impact, it is important that the acquiring company utilize specialists who do not represent the selling organization. In our experience, this is evidenced, when an ill-prepared specialist, working for the buyer, has undervalued liabilities by at least 50 percent, or an error of $137 million on a deal totaling approximately $500 million.