Human resources due diligence case study

How one buyer received a price concession due to the seller’s benefit programs

The issue: A US strategic buyer, who planned to acquire specific operations/assets in a carve-out transaction, engaged PwC to perform employee benefits diligence to analyze the allocated costs and the run-rate cost of benefits on a stand-alone basis.

Our approach: PwC evaluated the cost of the seller’s benefits as well as the proposed treatment for certain employee benefits. Consideration was given to whether the buyer would be required to sponsor mirror benefits for future service or whether employees might be moved to a seller’s existing benefit platform. PwC’s human resources specialists identified that the parent company had allocated the cost of employee benefit plans as a flat percentage of salaries and wages to estimate the cost or participation in the benefit programs.

The outcome: PwC estimated that the fringe rate for ongoing benefit programs differed from the historic allocation in the carve-out financials. The seller considered the cost differential in the purchase price.

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