DB deficits sunk more than 100 struggling firms

The Institute for Turnaround (IfT) told schemeXpert sister title Pensions Week that its members (private equity buyers focusing on distressed assets) walked away from £50m or more of deals – two in every five initiated – because they were not prepared to take on the businesses’ pension liabilities.

It claimed this figure is likely to grow by at least five times in coming years, as the private equity market picks up and total deal volume increases, meaning those companies that cannot find alternative funds for restructuring will go bust.

Jon Moulton, founder of turnaround specialists Better Capital, said he looked at one company at the end of last year with a Pension Protection Fund (PPF) levy that took half its £4m annual operating profit.

“These are companies that are in a lot of trouble,” he added. “The reality is that pension deficits are a complete switch-off for money deals.”

IfT chief executive Christine Eliott claimed many private equity businesses saw the issue as “their biggest albatross”.

She said: “You have got to consider the attitude of other stakeholders, including the banks, to lending money for these deals. They are not going to want to get involved with these schemes.

“Where we are looking at potential solvent reconstructions, we are going to end up seeing more insolvencies because of this, regrettably.”

The Confederation of British Industry expressed concern about the figures’ implications for the health and competitiveness of UK business.

Pensions policy adviser Mario Lopez Areu called on the Pensions Regulator to give longer for deficit repayment.

“That breathing space would enable firms to free more cash for investment, increasing their competitiveness and helping speed up the pace of economic recovery more generally,” he said.