Private equity acquisitions in the defense sector present notable complexities, especially when legacy employee benefit plans are involved. This case study explores how our team supported a private equity firm in evaluating and negotiating the benefit obligations associated with acquiring a division of a U.S. defense contractor, ultimately enabling a successful transaction and a smooth transition for unionized employees.
The challenge
A private equity firm faced significant hurdles in understanding and managing the retirement and healthcare benefit obligations tied to the division they sought to acquire. In particular, they had questions surrounding:
- Substantial legacy pension and retiree medical liabilities
- The need to assess both financial and non-financial risks inherent in the existing plans
- Deciding whether to assume responsibility for these legacy benefits and how to negotiate with unions to retain key talent
The firm needed to analyze and make decisions that would ensure the financial sustainability of the business post-acquisition.
The solution
Our team conducted a thorough, independent financial analysis of the division’s retirement and healthcare plans, including an assessment on a liquidation basis to fully understand potential exposures. Milliman experts:
- Estimated the costs of health and welfare benefits
- Reviewed the sales agreement for any hidden risks or obligations
- Provided strategic advice on negotiating with unions
Leveraging these insights, we helped the client successfully negotiate an agreement to maintain union benefits through a new carve-out pension plan. This solution was designed to be financially sustainable and to minimize risk, ensuring the ongoing retention of critical talent.
The outcome
As a result of our analysis and negotiation support, the private equity firm was able to keep union benefits whole in a manner that was both financially responsible and low risk.
Benefits of this approach included:
- A seamless transition for employees
- Preserved workforce morale
- Retention of talent essential for the division’s post-transaction success
The client entered the acquisition with a clear understanding of their benefit obligations and confidence in their ability to manage them going forward.
This case highlights the importance of expert analysis and strategic negotiation in complex acquisitions involving legacy benefit plans. By delivering actionable insights and facilitating constructive union negotiations, our team enabled the client to make informed decisions, mitigate risks, and lay the groundwork for long-term business success following the acquisition.