Pension trustees disrupt merger and acquisition activity

Interesting bit from Pwc. The implication seems to be that the progress of M&A is more important than the funding of pension schemes. First, I don't agree. If employers are running pension schemes they should fund them properly. Second, a lot of M&A activity is value-destroying - which means it costs pension funds money - so maybe it's not a bad thing that a brake is put on some of it. Actually I quite like the idea that trustees are able to through a spanner on the works of investment banks' deal activity.

From Prof Pensions:

TRUSTEE funding demands could scupper merger and acquisition deals as increases in interest rates and market volatility hit dealmakers, PricewaterhouseCoopers warns.

The financial services giant said increased market volatility over the past month had increased scheme deficits as equity markets and bond yields had fallen.

It added it was becoming a lot more expensive and much more difficult to raise debt to buy firms, meaning there was less cash around for dealmakers to make available to schemes in a bid to satisfy trustee funding demands.

PwC partner Marc Hommel said the combination of these two factors meant that trustees had to be increasingly vigilant about monitoring the employer covenant during deals and noted this would magnify the influence of schemes in deals going forward.

Hommel explained: “Finan-cing around deals has become tighter and the impact of each of the liabilities on each of the creditors on a deal has probably increased as a result.”

He added: “There is less cash around. Pensions, along with other creditors, are probably having even more of an impact than they were a month or two back.

“There may be some instances where dealmakers can no longer justify the sort of packages they were prepared to make available to trustees just two or three months ago in order to facilitate a deal happening.”

Hommel said the increase in volatility – with the associated drop in equity markets and changes in bond yields – had highlighted the fact companies and trustees needed to assess their appetite for retaining risk in scheme portfolios.

He said: “The real question is how much do you want to de-risk your liabilities and assets to take the volatility out of the situation?”