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How Advisers Can Help Clients Assess a Buyout Offer

Company buyout offers can be complex and have long-term consequences. Here’s how a financial adviser can help.

Corporate buyout packages are a common way for many employers to reduce the size of their workforce. Sometimes these buyout packages offer added incentives to entice employees to accept them. Here are some things financial advisers should consider when helping their clients decide whether or not to accept a buyout from their company.

While every company and every buyout package is a bit different, if your client is offered a package it’s probably a safe assumption that they may be on a list of employees that the company would potentially lay off.

Your client may be tempted to decline the buyout and stay on with the company, but this can be risky. The first buyout offer may be totally voluntary. However, the next one may not be. A financial adviser is in a good position to help them take an objective look at their situation, not only the pros and cons of trying to stay at the company, but also how the financial terms of the buyout offer fits with their situation and financial goals.

Clients who have been long-time employees might be especially reluctant to accept a buyout offer. The work environment is familiar and comfortable to them. They may have friends and valuable relationships at the company, and those can be hard to let go of.

Unfortunately, the employer may not look at things that way. To most companies, it’s a matter of dollars and cents -- especially if the company is in a competitive situation, or if their business has been hit hard changing economic and industry conditions.

The Next Offer Might not be as Good

The next buyout offer from the company might not offer terms that are as good as the initial offer. And worse, the next buyout might not be voluntary, it may come as part of a downsizing that includes your client. Often companies will offer sweetened terms to entice employees in certain groups or areas of the company to take the offer. If they can avoid it, many employers would rather not do a mass layoff.

However, if they don’t get the participation that they need in round one, or if business conditions worsen and the need to reduce headcount becomes more of a priority for the company, the next round of buyouts might not include terms that were as favorable as the initial offers. This might include actual layoffs and downsizing rather than voluntary buyout packages.

Analyze Terms and Incentives

It’s important to analyze what’s contained in the buyout offer. The terms and incentives may be sweetened to make it attractive for more employees to accept the offer.

These might include:

  • Additional severance pay beyond the company’s normal amount based on your client’s tenure with the company
  • Outplacement support, an allowance for job training and related benefits
  • Years added to their pension calculation, plus the ability to take their pension payments sooner
  • The company may offer more flexible terms for those taking the buyout offer with regard to stock options or other types of equity-based compensation such as restricted stock units.
  • Extended medical insurance coverage or retiree medical coverage for those approaching retirement age

How Does the Offer Fit?

Any buyout offer should be evaluated in the context of an individual’s overall situation and stage of life. For those very close to retirement, this offer might provide the incentives to allow them to move into retirement a bit earlier than planned. Many buyout offers are in fact early retirement packages.

Perhaps your client had thought about leaving their current employer to seek employment elsewhere. Or perhaps they’ve been considering striking out on their own. This buyout package could offer the financial bridge they need.

Tax impacts should be analyzed as well, though this probably won’t be the driving force in terms of making a decision. In some cases, you may be able to work with your client to delay income into the next tax year or perhaps accelerate some expenses into the current year to take full advantage of some of the aspects of the buyout offer.