Successful Acquisitions Include Thorough Due Diligence
October 11, 2023
For an acquiring organization, due diligence of a target company’s retirement plan may not be at the top of the list of acquisition activities. But a focused review of the retirement plan can help achieve a successful purchase. A thorough due diligence team can identify potential risks and liabilities, compliance issues and other retirement plan issues.
Uncover Liabilities and Issues
Whether the acquisition is a stock or asset transaction, there are many factors to consider related to the retirement plan (qualified and/or nonqualified) associated with the purchase.
In a stock acquisition, the buyer generally assumes legal responsibility and liabilities of the seller’s retirement plan. In asset acquisitions, the seller often retains the legal responsibility and liabilities of the retirement plan, and the plan is subsequently terminated by the seller. However, the disposition of the retirement plan can be negotiated pre-close.
In either case, conducting thorough due diligence of the plan:
- Determines potential exposure to liabilities that may be present in the retirement plan involved in the acquisition
- Uncovers hidden issues that could affect the qualified status of the acquired plan, as well as that of any resulting merged plan
- Allows the acquiring company to determine a plan for post-close harmonization