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by Jeremy Furniss - Wednesday, 29th August 2007

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The problem with pensions

Underfunded pension schemes have become the bane of most corporate financiers’ lives over the last four years. Pensions advisers (generally actuaries) appear to live in a parallel universe to everyone else on the transaction, willing to wallow in the technical detail rather quickly identify commercial solutions.

You might be safe if the business being acquired has a defined contribution scheme – the likelihood that you’ll encounter problems is much smaller than with final salary schemes, where snafus are 100 per cent certain.

Actuaries are the one category of adviser that I am more than willing to bully to get a deal over the finishing line. You should be too! Get them involved early on in the transaction and keep pushing them whenever necessary.

Warranty insurance woes

In return for a fairly hefty one-off premium, if a warranty claim is made, substantiated and falls within the cover, the insurance company will step in and pay it out for you.

The tricky bit is, you often can’t get the warranty and indemnity package finalised until the last throes of the acquisition. Involve the insurers in the detailed legal negotiations between buyer and seller to avoid insurance causing a two-week delay.

Missing vendors

The three-week vacation is the scourge of many transactions.

Small (and it’s usually the most insignificant) shareholders, who nonetheless need to sign the legal contract transferring ownership of the target company, regularly disappear on holiday.

I once had a boardroom full of highly paid executives and very expensive lawyers twiddling their thumbs for two days waiting for a minority shareholder to reach land (and a fax machine), having taken longer to sail a yacht across the Atlantic than anyone had anticipated.

Best practice is to collect powers of attorney from all the signatories to the legal contract well in advance of the completion meeting. This means giving a third party the legal authority to sign on your behalf in your absence, but generally limits the authority to the immediate task at hand.

If you are nearing the summer or Christmas silly seasons and your lawyer hasn’t asked anyone to sign a power of attorney, permission granted to put a flea in his or her ear!

Banking hours

A frequent reason for delay on deal day is missing the window for making electronic transfers between the buyer’s and seller’s bank accounts. No money – no deal!

To make transfers between different banks in the UK, funds must clear before 3pm on the day of completion. Otherwise they will not “arrive” in the vendor’s bank account until the next day.

If you make transfers between different accounts within the same bank, you may have a few hours’ extra grace. Always ensure your lawyers are on top of this boring but essential piece of admin. Ideally funds should be deposited by the buyer and seller into their respective solicitors’ client accounts one or two days before completion is due to occur.

Where’s the champagne?

I have yet to attend a completion meeting where the final moments of the signing ceremony have not been rather anti-climactic. After 25 years of hard toil and several months of grisly negotiations, the over-riding sensations of most private vendors are of relief and exhaustion.

There are no impromptu congas around the boardroom! It is always a shame for the completion meeting to end on a flat note.

If you’re the acquirer, start chilling the champagne and have prepared a few well-chosen words acknowledging the vendor’s success, giving your thanks (genuine or not!) to everyone for their help and confirming your intention to develop the business.

As for you sellers, it couldn’t hurt reminding the buyers about the bubbly.

First published in September 2005. For more articles by Jeremy, dealing with all the issues surrounding buying and selling companies, visit our archive.

Tags: legal contract, actuary, diligence, pensions, sale, legal negotiations,