Friday, 21 November 2008

DB stifles PE

This piece in the FT is quite interesting (you need to scroll down a bit for it). The re-emergence of pension scheme deficits is likely to further increase their role as poison pills.

Pension liabilities are large hurdle

More than four out of five private equity groups view the need to reach agreement with the trustees of a pension fund as a significant hurdle to acquiring a company with a defined benefit pension scheme, according to research.

With the government preparing to beef up the powers of the Pensions Regulator and many pension funds facing growing deficits, several private equity groups view pension liabilities as one of the biggest hurdles to completing deals next year.

The biggest worry for more than half the 16 private equity groups that responded to the survey by Punter Southall, the pensions adviser, was the risk that new life-expectancy predictions may inflate the pension-fund liabilities at companies they own.

Richard Jones, principal at Punter Southall, said: "If there is a pension scheme in a company then it is the first thing that private equity [firms] seek external advice on.

"Several clients we used to work with now say they will not touch another company with a defined benefit pension scheme," he added.

The survey found that most private equity groups were sanguine about the regulator's powers. Most found it less worrisome than the potential actions of trustees after an acquisition is completed, or the risk of future legislative burdens.

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