You have just received an email letting you know that your company is very close to acquiring a competitor. You have been assigned the responsibility to plan and oversee the environmental, heath & safety segment of the due diligence.
As any good manager would, your first inclination is to plan – what is your budget? What schedule do you need to meet? Two key questions will help structure your effort to assure you focus your time and resources optimally.
What is being acquired?
Although this seems straight forward – you might have even been given a list of addresses – in practice, this requires some careful consideration. The nature of the acquisition can create some nuances that will be very important to planning your task. Some different types of acquisitions are described below:
Land Only. As implied, only the land is being purchased, possibly for further development
Land and Buildings Only. In this case, the land and associated buildings are being purchased. The intent may be to continue the existing uses of the buildings and property, or after acquiring the real estate, your company may have a different use (e.g., different business type, different process, etc.).
Leased Facilities. Instead of purchasing real estate, your company may assume the leases at different properties.
Assets Only. In this case, your company may purchase the real estate and other assets, such as equipment, only. Typically, current employees are not transferred with the acquisition.
Business Acquisition. Here, the entire business is acquired – including both assets and liabilities. In this instance, EH&S liabilities can include previously-owned facilities and waste disposal liabilities which extend beyond the current list of properties.
It is not unusual for acquisitions that involve multiple sites to include several types of acquisition types. You may be acquiring some properties and taking over leases on other properties.
How is the acquisition being funded?
Although funding mechanisms can come in a multitude of formats,the key issue for your planning effort is whether it is a “cash” or “stock” transaction. Typically, the later may result in your company taking on of the more liabilities of the acquired company, including EH&S liabilities. If funded through a stock transaction, does it make sense to conduct due diligence? Absolutely! You need to understand the liabilities associated with the acquisition. You may also be able to mitigate some liabilities, such as missing environmental permits, prior to the transaction. [read more about revised EPA Audit Policy related to new owners]
For further information on planning environmental due diligence, environmental compliance assessments and audits, contact Caltha LLP.