Over the past several years, there have been more than 700,000 mergers and acquisitions worth roughly $6.5 trillion in North America. Also, more Americans will turn 65 this year than at any other time in history. 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. 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.
If you have questions on your company’s retirement plan, contact 1834, a division of Old National Bank at admin@1834.com. 1834, a division of Old National Bank is a boutique-style wealth management firm that caters to high-net-worth clients and institutions to create an optimal financial future. The comments, views and opinions expressed herein are those of the author and 1834. From time-to-time, Old National Bancorp affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report. Old National Bancorp and its affiliates do not accept any liability for any direct, indirect, or consequential damages or losses arising from any use of this report or its contents. Investment instruments utilized by 1834 are not insured by the FDIC nor any other government agency, are not deposits or other obligations of 1834, Old National Wealth Management, Old National Bank, its parent company or affiliates, and involve investment risk including the possible loss of principal invested. The material contained in this presentation may not be copied, reproduced, republished, posted, transmitted or otherwise distributed without prior written permission.