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Merger and Acquisition Assessments
The Payne Firm realizes that environmental due diligence for industrial mergers and acquisitions (M&As) are distinctly different from routine Phase I Environmental Site Assessments (ESAs). The difference in the sophistication of the parties involved and the unique characteristics of the due diligence approach demand that environmental findings be presented in a way tailored to the needs of the M&A participants. After all, the role of the environmental consultant in an M&A assessment is not only to identify the significant environmental exposures, but also to quantify the potential financial risk. The consultant must expeditiously understand the type of transaction, the objectives of their client and the transaction schedule. Understanding the client's needs and active communication between the consultant and client is essential for a successful acquisition.
The value of environmental due diligence in any M&A situation is entirely dependent on the technical team's ability to collect, evaluate and report data and information relevant to the transaction. This information must be presented in a format that enables legal counsel and the client to make decisions with confidence and understanding of risks.
In a selling situation, the Payne Firm’s experience indicates that up to six months may be required to complete the environmental evaluation prior to announcing closure or presenting an offering for sale. In a buying situation, the scope of work typically needs to be completed in 15 to 20 days and usually includes an expanded ESA, a review of regulatory compliance, identification of potential “Deal Killers” and quantification of environmental risks associated with the facility.
The quantification step involves determining the financial resources that would be necessary to resolve the identified environmental exposures. The Payne Firm usually presents the information in a concise manner including decision trees, tables and probability analyses. The resolution may range from obtaining proper permits for meeting regulatory compliance to installation and operation of a long-term ground water or soil remediation system. This quantification involves some interpretation of a regulatory agency's policy and probable approach toward the site as the costs of environmental work increase significantly with aggressive agency involvement.
Client: US Division of an International Chemical Company (Buyer)
Location: New Jersey, Tennessee and California
Issues: Environmental Contamination and Regulatory Compliance
Our client was considering the acquisition of a chemical company with manufacturing facilities in New Jersey and repackaging and distribution facilities in Tennessee and California. The New Jersey manufacturing facility had identified 19 areas of environmental impact under the New Jersey Industrial Site Recovery Act (ISRA) program and received No Further Action Letters for 13 of the identified issues. After independent review of existing data, we identified two other potentially significant sources of ground water contamination including an off-site landfill owned and operated by the facility. We prepared an assessment of the probable costs to complete the site remediation (capital and operation, monitoring and maintenance costs), to bring the site into compliance with environmental regulations, the potential costs associated with the newly identified issues, and the potential cost for complete closure of the facility. Meetings were also held with the New Jersey Department of Environmental Protection (NJDEP) Site Coordinator to clarify the site status independent of the seller's opinion.
Client: Major Brewery (Buyer)
Location: Southwest Ohio
Issues: Historical Environmental Concerns (Ongoing Project)
Our client considered purchasing a brewery in Southwest Ohio. The brewery is over sixty years old and has expanded several times over the years. Prior to the initial site visit, a historical review was completed which revealed that numerous underground storage tanks (USTs) were historically present on several portions of the current brewery property. In addition, several other potentially harmful manufacturing operations were identified as being present on the property at one time. These operations include dry cleaners, paint and varnish operations and automotive repairs. A soil and ground water investigation was conducted in phases. Phase I was the investigation of the dry cleaning operations which revealed soil and ground water contamination. Additional investigation confirmed that ground water was contaminated under the property associated with two former USTs. Based on this information and proposed site remediations, the transaction was successfully completed. Site remediations are being finalized at this time.
Client: Industrial Coating Manufacturing Facility (Seller)
Location: Cincinnati, Ohio
Issues: Soil and Ground Water Contamination
The potential sale of our client's facility to an international corporation was scuttled by the presence of ground water contamination emanating from a source under the building. In preparation for the future sale, soil and ground water contamination was remediated within 18 months. The facility was then sold to an industrial holding company within 24 months of the withdrawal of the first offer. No environmental indemnification was required to complete the sale. The final remediation costs were within 10% of the costs that we projected for the first potential sale.
Client: Industrial Holding Company (Buyer)
Location: 16 Locations - United States and Canada
Issues: Environmental Contamination and Regulatory Compliance
Our client was considering the acquisition of a $40 million subsidiary of an international electronics equipment manufacturer. The subsidiary repaired electric motors at 16 service centers throughout the United States and Canada. Most of the service centers handled PCB-containing equipment and several had known environmental problems. We provided a preliminary environmental screening by reviewing corporate environmental files at a central location, checking federal and state data bases and conducting telephone interviews with facility personnel. The preliminary screening grouped the facilities into categories of no potential environmental exposures, significant potential environmental exposures, insignificant environmental exposures, and sites where assessment of the potential environmental exposure required a site visit. The site visits were necessary in cases when the corporate files were incomplete or when the files indicated a problem unrecognized by corporate management existed. After completing four site visits the potential environmental exposures were financially quantified in a summary report and decision/probability tree. The project was completed in less than four weeks.
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