Pensions deficit expected to hit M&A market
Close Brothers Corporate Finance ("Close Brothers") has today warned that the volume of mergers and acquisitions in the UK in 2005 could be held back because of a reluctance by private equity firms to work with companies that have pension shortfalls. There are also separate concerns that there is a 'knowledge deficit' amongst company bosses of the future role of the new Pensions Regulator.
According to Close Brothers, the majority of the owners of companies including institutional shareholders, directors and private equity investors have limited understanding of the implications of the new Pension Act 2004 which has led to the replacement of OPRA with The Pensions Regulator (effective 6 April 2005).
It believes that few company bosses realise that anyone involved in the administration of pension schemes has a legal duty to report 'notifiable events' to the Pensions Regulator e.g. changes of control, changes in credit rating, breaches of bank covenants. Indeed the Pensions Regulator is currently working with the Department for Work and Pensions with the intention of adding further notifiable events to the regulations such as significant returns of capital to shareholders.
Concerns have also been raised that the wording of the moral hazard clauses of the Pensions Act are so vague that, for the first time, liabilities could extend beyond a company to its ultimate owners or anyone connected with the owning of a company including their immediate families.