An acquisition is the moment benefits get messy. Two plans, two renewal dates, two sets of employees comparing what they had. It's also one of the best moments to restructure, because everyone already expects change, and a private equity sponsor is watching every line that touches EBITDA.
Before close. Benefits diligence is too often a last-minute checklist item. The questions that matter:
- How is the target's plan funded, and are there self-funded run-out liabilities or stop loss gaps that come with it?
- Who are the large claimants, and how will they affect the combined plan's renewal?
- Are plan documents, SPDs, and compliance filings current?
- Are there executive benefit promises, severance, or retiree commitments buried in employment agreements?
- What does the target's broker get paid, and does anything trigger on a change of control?
A hidden liability found after close becomes the buyer's problem.
After close. Most buyers eventually move everyone to one plan. Move too fast and you create employee anger, especially if one group loses a richer plan. Move too slow and you run duplicate vendors and duplicate renewals. Set a target date, model cost and employee impact for each group, and communicate early.
The opportunity. Combining two groups often creates enough size to consider self-funding or a captive for the first time. For a buy-and-build, build the plan to absorb future add-ons, so you're not rebuilding it with every deal.
Questions to ask
- What benefits liabilities did diligence uncover, and how were they priced into the deal?
- What is our target date and plan for moving everyone onto one plan?
- Can our current contracts add new acquisitions without a new renewal?