Written by Leslie Nicholas, Senior Scientist who works for BBJ Group's Real Estate and Transaction Support Practice Area
By BBJ Group March 18, 2019
Written by Leslie Nicholas, Senior Scientist who works for BBJ Group's Real Estate and Transaction Support Practice Area
You’ve identified the target you want to acquire. All of the numbers look great and so far, nothing scary has been found as far as past business practices or environmental contamination. All systems, Go, right? Hopefully. However, when you’re buying the business itself, you need to consider their recent actions too. Most industrial businesses will have some form of compliance footprint when it comes to environmental, health and safety (EHS) regulations – be it in chemical use and reporting, waste management and disposal, air emissions permitting, or wastewater and stormwater generation. Noncompliance in any of these areas can result in significant financial challenges, either from monetary penalties issued by regulating agencies, or in increases in operational budgets to cover environmental matters.
Hopefully, you’ve found a business that has found a cost effective way to stay in compliance. We usually see this with targets that have been through the due diligence process once before, or that are divisions of larger corporations with in-house EHS personnel, though beware of falling into the trap that just because they seem to have all the right permits that everything is okay. Your environmental professional can help you determine:
The above outlines potential EHS pitfalls for facilities with permits in place. All too often, however, we see businesses where environmental compliance has not historically been a major focus, particularly with small- to medium-sized companies that have been family-run for several decades. These businesses are very often overlooked by regulators because the regulators are focusing on the “heavy hitters” – businesses that are in the news or that are well known in certain regions of the country.
Given their low priority on the regulators’ radar screens, these smaller businesses often take the approach of “no one told us we needed to get a permit for that”. This “mea culpa” strategy often works for one-off facilities, but once they have become part of a larger organization (possibly such as yours), then agencies may not be as forgiving without a proactive strategy. By including compliance review as part of the due diligence process, you can identify potential deficiencies and develop plans to correct them once you become owner.
These compliance reviews typically cover:
Most investment experts immediately think about how the economics of the operations of a target will fit into their financial forecasts. By also thinking about some of the above pitfalls, you can make sure that environmental compliance surprises are planned for as part of the due diligence process and integrated into the successful purchase and integration of the target into your own successful portfolio.
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