We are in the midst of a robust merger and acquisiton environment. Much of it is being fueled by private equity firms flush with cash. The other part of the equation has to do with demographics – those Boomer business owners looking to cash out. Two sets of issues can slow down or even derail a deal: environmental issues and employee benefit and compensation issues.
Rush Nigut nicely covers the former when he tells business owners contemplating a sale that they shouldn’t forget to address the environmental issues up front on his blog Rush on Business. Employee benefit and compensation programs are also issues that should be addressed pre-deal. In both cases, the focus is on the liabilities – current and potential. Benefit and compensation programs can include, of course, retirement plans, welfare benefit plans, and non-qualiified deferred compensation plans. Some of the questions buyers will ask include:
- Is the retirement plan “qualified” for purposes of receiving tax favored treatment under the Internal Revenue Code?
- If the seller maintains a defined benefit plan, what is its funded status?
- If the seller contributes to a multi-employer, collectively bargained retirement plan, is there a withdrawal liability?
- Are there any welfare benefit liabilities, e..g, post-retirement medical benefits.
The due diligence process for both environmental and benefit and compensation issues can be quite involved, the results of which often dictate how the deal is structured: stock sale or asset sale. So as Rush Nigut suggests: address the issues upfront.