A close observer with much more expertise than I recently summed up the sorry tale. Pensions trustees want the black holes in pension funds filled with increased contributions. Ratings agencies see deficits as debt that has to be serviced and a threat to credit worthiness. Analysts see deficits eating into shareholders’ dividends.
Then there are employees for whom the very mention of pension deficits is, for obvious reasons, the cause of cold sweats. Every which way you turn someone, somewhere has a reason to be fearful.
But here’s the shocker – some finance directors might just see a pension deficit as useful. You wouldn’t want to go about creating one, of course, but put yourself in the shoes of an FD whose company is being pursued by a bunch of dynamic private equity chaps.
They want to know every single detail about your finances, even your pension fund deficit, before they play their cards. Well, there’s no obligation to hand over the figures for the fund, your duty of care is to fundholders, not the private equity bods.
As a result the private equity bidders lack decent disclosure and are less likely to make a bid.
It’s clear that the current plethora of pensions deficits will prove a major obstacle to private equity deals. Philip Green said as much when he was bidding for Marks & Spencer. The question is will finance directors use their pension deficits deliberately to stave off bids?
If that is the case, the private equity practitioner faces a tough time ahead making some difficult decisions. Do they decide to accept more risk and acquire companies without quite knowing what’s going on in the pension fund? They might do this. After all, private equity is all about taking risks. Or, do they look for some means of forcing companies to clarify exactly what the position is.
One thing seems certain: something will have to give. Private equity people are awash with cash looking for a home because it has to make a return. They will surely need to force the issue soon.
Gavin Hinks is deputy editor of Accountancy Age
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