Defined benefit pensions continue to be a serious concern and ongoing challenge for private equity firms, whether making acquisitions or disposals and whilst managing portfolio companies, according to a survey published by investment advisor Punter Southall Transaction Services.
The top pensions-related concern mentioned by over half of the private equity firms surveyed was the risk that changes in future life expectancy predictions will increase liabilities during ownership, resulting in a loss on exit.
Despite concerns about longevity, very few private equity firms are prepared to entertain the prospect of a pension scheme buy-out at current market levels. For many, there would need to be a significant price drop, the survey said.
Punter Southall surveyed 16 private equity firms in the UK to find out how the domestic private equity market prices defined benefit pension liabilities and the significance of pension schemes with regards to making and disposing of investments.
More than 80% of survey participants see making an agreement on a deal with a pension schemes trustees as a significant hindrance to completing a deal.
“This latest survey confirms that concerns about pensions are still a significant challenge for most private equity companies,” says Richard Jones, principal of Punter Southall Transaction Services. “Whether it is overcoming hurdles such as agreeing a deal with trustees or fears about the risk of increasing life improvements costing them more than anticipated, seeking professional advice on transactions before and after an acquisition is more important than ever before.”
D.C.