Pensions  

KPMG’s Pensions team provides a range of pensions services to large-scale organisations and pension funds. We operate in a fast-moving sector that calls for a multidisciplinary and far-sighted approach to critical business issues.

  • Rebecca Porter

    • Job title: Trainee Actuary
    • Degree: MSc Mathematics, Operational Research, Statistics and Economics
    • University attended: Warwick University

    The Brief

    KPMG's Pensions team in London was part of a multi-member firm team providing due diligence, valuation and negotiation assistance services in a cross-border transaction. Our client, a leading Saudi Arabian manufacturing company, was seeking to acquire the UK subsidiary of a large US multinational. The target company in the acquisition had around 1,000 employees who participated in one of the seller’s defined-benefit pension plans. The target’s part of the scheme was worth over £200 million, and this was a significant issue in relation to the size of the deal.

    As a result of the transaction, our client had to take on the obligation to fund the transferring pensions deficit. KPMG's Pensions team was asked to advise on how to allow for this liability when pricing the business, and to help our client negotiate a satisfactory measurement basis for this purpose. We also had to consider setting up a new pension scheme for the target's liabilities within a very tight deadline.

    How we did it

    We had a small team of qualified and part-qualified actuaries in the UK firm's Pensions department who worked closely with other UK specialists to provide advice to the purchaser in the lead up to the transaction. The focus of our work was on ensuring that the client fully understood the complicated issues arising, and helping in the negotiation process with the seller. We also had to guide the client through discussions with the trustees of the seller’s pension scheme.

    In conjunction with the UK firm's Pensions team in Reading, we helped to set up a new pension scheme following the transaction. This meant transferring not only current employees but also liabilities towards former employees and current pensioners to a newly-established scheme.

    This was one of the first large transactions I was involved in. As I was the junior member on the team I was mainly involved in performing the calculations and checks on our model, but I was also able to get involved in the team meetings where we discussed the issues surrounding the deal - plus the correspondence we had with the client and the wider transaction team. This gave me a good insight in the M&A work we carry out as a department, and the processes that must be considered and carried out in an international transaction. It was also really interesting to see just how much of an impact pensions issues can have on a large transaction of this kind.

    After the deal was completed there was still a lot of work to be carried out. The client wanted a number of the employees working for the UK target to come over to work in their European headquarters in the Netherlands. I was given the responsibility of performing the majority of calculations needed to compare the benefits that these employees would have received if they remained in the UK to those they would receive if they transferred into the client’s Dutch scheme. This meant I had to learn something about Dutch pension provision rather than purely focusing on the UK. I also set up a fairly large model from scratch to value each individual's benefits. Again, this was all under tight deadlines and we had to then communicate our findings to the client.

    Results

    Through our analysis and assistance in negotiations with the seller, we were able to secure a significant transaction purchase price reduction for our client, and smooth the transitional issues arising as a result of the change of ownership. The client appreciated the way we clearly communicated solutions to the complicated pension problems which arose, and they have subsequently used our services on a number of other engagements, including an even larger cross-border transaction.