M&A advisers are warning that controversial pension reforms could derail the surging private equity market after the Government last week announced plans to subject a swathe of M&A deals to fresh regulatory hurdles. Concerns are focused on amendments to the current Pensions Bill that would introduce a clearance procedure overseen by The Pension Regulator to vet deals involving companies with retirement liabilities.
The reforms, included in amendments tabled by the Government on 26 October, have added to mounting unease among corporate lawyers that the Bill could hamper normal corporate restructuring and deter inward investment.
In July, the Government agreed to suspend sections in the Bill that would have given regulators powers to require company directors, shareholders and associated businesses to meet pension liabilities, after a campaign by the British Venture Capital Association.
The reforms are designed to protect pensioners from unscrupulous employers ditching obligations through corporate restructuring.
However, last week’s amendments were largely viewed as having failed to ease fears that liabilities can be easily transferred, while raising the prospect of additional regulatory hurdles for deals.
Concerns have been heightened by the recent sight of deals being stalled due to pensions deficits, while any legislation threatening to derail the flood of private equity deals would be met with dismay by advisers still wrestling with the current slump in public M&A.
Macfarlanes pensions partner Hugh Arthur said: "Realistically, the effectiveness of a clearance procedure depends on how quickly the regulator is able to act. A 14-day turnaround would be great, but bureaucracies move slower than the corporate world."
Macfarlanes private equity partner Ian Martin added: "Still, there is uncertainty over retrospective aspects of the proposals. You would want to get reassurance from trustees of final salary schemes with deficits [before investing]."
Norton Rose’s head of corporate and regulatory insurance, James Bateson, highlighted concern about the level of deal expertise at The Pension Regulator, saying: "The real problem is moving into an uncertain landscape. Time will tell how effective the clearance procedure is."
Arthur added: "The changes are an improvement, but that only underlines how extreme the original proposals were. For private equity investors, concerns remain."
The Bill is expected to gain Royal Assent by the end of November.