M&A on the Horizon? Don’t Forget About Your Company’s Retirement Plan

 

Over the past several years there have been more than 700,000 mergers and acquisitions worth roughly $6.5 trillion in North America.¹ Also, more Americans will turn 65 this year than at any other time in history.² Baby boomers own about half of U.S. businesses – which is creating a transformational change in business ownership as older Americans transition companies to new owners.³

 

The flurry of M&A activity presents opportunities, but it is imperative to prepare early for a transaction and the potential liabilities that exist. For example, buyers and sellers need to be aware of any retirement plans within a business and how they could be impacted during a transaction. Leaving retirement plan details as an afterthought in a deal may create a time consuming and expensive issue.

What to plan for as a buyer or a seller.

When a party is contemplating buying or merging with another business, it is important to know what, if any, retirement plans are part of the firm. Not doing so can create dramatic unforeseen consequences for the buyer – but with proper planning, those issues can be mitigated.

 

The transaction type plays a key role:

 

• Stock sale: When a party buys a company, the selling party’s shareholders receive cash or possibly other compensation for their ownership. The new buyer assumes the seller’s liabilities, which include retirement plans in most, if not all, cases.
• Asset sale: When only the seller’s assets are purchased, the buyer is not responsible for the liabilities of the seller, including the retirement plan. Employees continuing with the buyer are considered new hires and typically are terminated employees of the seller.
• Disposition transaction: Is a subgroup of a sale of an asset where the buyer purchases just a part of a business. Typically, impacted employees’ benefits are put into a separate plan created by the buyer.

 

What is more, be aware of what kind of retirement plans are involved with any firm.

Bring your advisor in early. 

Communication with employees of the business is important, but letting your advisor know is vital too. Among the most important communication and research components with your advisor include:

 

• Gather and review all plan documents and communicate the strategy to all involved.
• Identify any potential liabilities that may be absorbed in a stock transaction.
• Identify the strategy of how the existing plans will be affected.

 

Buying a business is complicated and involves a plethora of potential issues. Retirement plan considerations are only one potential hurdle, but they are an important one. Careful planning, communication and research can help avoid complications that could harm the value of the deal. As always, reach out to your 1834 team with any questions.

 

 

¹ Institute for Mergers, Acquisitions & Alliances: https://imaa-institute.org/mergers-and-acquisitions-statistics/

² The Wall Street Journal: https://www.wsj.com/health/america-has-never-had-so-many-65-year-olds-theyre-redefining-the-milestone-4383e769#:~:text=About%204.1%20million%20Americans%20will,at%20the%20Bipartisan%20Policy%20Center

³ Teamshares: https://www.teamshares.com/resources/silver-tsunami/#:~:text=Key%20Takeaways%3A,reach%20retirement%20age%20each%20year

 

References

Institute for Mergers, Acquisitions & Alliances, Wall Street Journal, Inc., John Hancock