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GENERAL SECTION
Environmental Preparation for
Strategic Divestiture
Business divestitures can be made for many strategic business purposes, but all divestiture strategies have the common goal of maximizing revenue generated by the divestiture. Preparation for the divestiture can maximize the value of the business or property, accelerate the time it takes to divest, and minimize the buyer’s proposed discounts or requests for indemnification. A strategic divestiture plan should include preparing for the buyer’s environmental due diligence as well as the financial due diligence.
A strategic divestiture plan can be a generic policy used by managers throughout the company in divestitures. It can range from a simple checklist used by the plant personnel to prepare for the due diligence visits of potential buyers to a company policy for evaluating the property value and risks and ranking their potential divestiture value. The strategic divestiture plan can include factors such as how easy a property may be to sell or the potential goodwill divestiture may bring from the surrounding community.
PURPOSE
The purpose of the environmental preparation under a strategic divestiture plan is to reduce the potential buyer’s concern about environmental risks. The property value is at a minimum when a potential buyer discovers an environmental issue. The more uncertainty there is about an issue, the greater the buyer’s risk. If the seller can reduce the uncertainty, the buyer’s risk and need for compensation is reduced. The seller should not be concerned about generating “smoking guns”, because the buyer will uncover the same issues either during due diligence or later. The seller should work with legal council if there is concern about discovery or reporting obligations.
In many cases, the assumed environmental risk may not be real. There is a stigma associated with many older factories and “brownfield” properties that the environmental issues are overwhelming. Recent changes in cleanup standards recognize the settings of these properties and make cleanups either unnecessary or manageable. Under the divestiture strategic plan, the seller can determine the actual risk and cleanup standards so that the buyer does not exaggerate the potential risk.
PROCESS
The strategic divestiture environmental plan should be designed at the management level and implemented at the plant level. The company management needs to consider the company’s risk policy, overall business strategy, and financial objectives. The plant personnel implement the plan in preparation for due diligence investigations. Similar to preparing for client tours or other inspections, simple good housekeeping goes a long way toward impressing potential buyers. The plant personnel, however, may be unaware what may be considered a recognized environmental concern (REC) during due diligence. An outside consultant may provide assistance in identifying issues and creating a punch list for the plant personnel to complete in preparation for due diligence.
The Payne Firm has assisted clients both at the management level in preparing a strategic divestiture plan and in implementation at the plant level. To help clients with divestiture plans, we have created a scoring system for the evaluation and ranking of numerous properties. The scoring system incorporates the development potential and financial goals as well as environmental impairment in objective evaluation of the potential to turn underutilized properties from liabilities into assets.
At the plant level the Payne Firm has provided pre-divestiture assistance in guiding facility personnel by identifying RECs and preparing options for corrective measures. RECs may include permit issues, record keeping, training documentation, hazardous waste management, or signs of soil and ground water impact. When there are signs that soil or ground water remediation may be warranted, the Payne Firm determines the applicable cleanup standards and remedial options, including associated costs and timeframe. Having this financial information up front minimizes potential disputes with the buyer during due diligence. This information may also be used to obtain insurance coverage for the matter.
BENEFIT
The benefit of the environmental aspects of a strategic divestiture plan is that it maximizes the potential value of the divestiture. The environmental preparation will remove uncertainty related to environmental risks and remove the stigma that may be associated with the property. Through strategic divestiture planning the seller controls the valuation of the property, minimizes disputes with potential buyers, and accelerates the selling cycle. For more information, please contact Donald Fay or Michael Saul at (513)489-2255 or by e-mail at daf@paynefirm.com or mts@paynefirm.com.
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