- Investment Bankers
- IT Consultants
How about actuaries and HR consultants? If you've seen them, you might be in the minority. If they get called in at all, it's usually in the last day or two before a deal closes. Then, because they didn't find much in their limited time, they don't get used next time.
The other people that I mentioned above don't find everything. Their views are biased by their experiences. They tend to miss the things that they don't deal with every day.
Here is a short list of things that I have seen over the years that have been missed by the usual suspects:
- A poorly designed SERP that was due to pay out hundreds of billions of dollars to a single person upon change in control. The accountants missed it. The attorneys missed it.
- A valuation of retiree medical benefits that understated obligations by more than $25 million in a roughly $100 million deal. The accountants looked at the actuarial assumptions that they are familiar with. They missed a few biggies.
- 401(k) plans with lots of outstanding loans that could only be repaid by payroll deduction from the plan sponsor. What happened? Dozens of employees unknowingly defaulted on their plan loans resulting in adverse taxable events. The attorneys didn't look for administrative issues.
- A defined benefit plan that had less plan assets than 12 months of upcoming benefit payments, but no minimum required contributions. Nobody focused on this one.
- An acquisition that had a higher-paid employee group than the rest of the company and a much more generous retirement benefit structure. Everybody ignored this one, and in fact, since this was a top-secret acquisition, nobody in HR or HR Legal even new that this acquisition had happened until it was too late to properly assimilate this company's benefits into the corporate structure. A few million dollars later, this problem got fixed.
So, what's the message? Engage independent HR consultants and actuaries in the due diligence process. Compared to other advisers, their cost may be low, and they might not find anything, but if they do, it could save you a lot of money.