The Benefits of Sell-Side Environmental Diligence

Sell-side environmental diligence is becoming commonplace when preparing a Company for an exit, as it can streamline the sale process. Just as a Seller gets its financials buttoned up in preparation for a sale, putting the Company’s best foot forward with regard to environmental, health and safety (EHS) matters is also a useful process, and becoming more and more “expected”. Sell-side environmental work has many benefits including:

• Increasing Buyer confidence, and reduce or eliminate Buyer EHS diligence footprint/scope

• Increasing the speed to closing

• Eliminating tricky negotiations, especially if EHS “surprises” are found late in the process by the Buyer

• Allowing the management team to focus on other aspects of sale/deal

• Creating operating efficiencies at the Company

• Avoiding regulatory citations and enforcement

• Adding value through EHS improvements that may be reflected in the purchase price

Prospective Buyers are often interested in conducting their own environmental diligence to identify EHS matters that could represent a risk to their investment. If a Seller furnishes prospective Buyers with comprehensive EHS diligence reports up front, it signals that the Company has already conducted thorough diligence, and that it was done in a spirit of teamwork and partnership (as opposed to an outsider’s analysis). This allows Buyers to proceed with more confidence, often resulting in less invasive buy-side diligence. This saves time and money for the Buyer, as well as Company management’s valuable time, and reduces business disruptions in the weeks leading up to closing. Remember that a Buyer will likely request access to EHS reports that have been prepared historically (e.g., during initial acquisition, prior due diligence, or from other environmental assessment activities). Refreshed, up-to-date reports are important to address any outdated information (e.g., as the Company has grown or changed) as well as any issues or deficiencies that may have been raised in older reports, or have emerged through the ongoing ownership/operation of the business.

In addition, due to business continuity, timing, and/or confidentiality considerations, Buyers may not get full access to EHS management personnel during their diligence process. Access to sell-side EHS reports (and the sell-side consultant) helps to provide Buyers with confidence that they are receiving a complete, objective, and accurate picture of environmental contamination, compliance, and health and safety matters, as well as those related to potential legacy matters (for example, those related to former sites, and/or off-site waste disposal liabilities).

Aeterra's team of diligence experts has extensive experience navigating complex transactions. Aeterra strategizes with our Clients and their advisors to design a meaningful, tailored scope of work for each Company and transaction. The approach often includes visits to Company facilities, providing prospective Buyers with confidence that each operating location has been fully evaluated. Deliverables may include Phase I Environmental Site Assessments (considered the industry standard in environmental due diligence), streamlined environmental review reports, and/or comprehensive memos, which provide a fulsome overview of environmental impact matters, environmental regulatory permitting and compliance, and health and safety metrics and programs applicable to the Company’s operations. Depending on the structure of a transaction, Buyers may be concerned with potential legacy matters that could be inherited through an equity acquisition; Aeterra’s sell-side memos are also intended to address Buyer’s potential concerns with regard to the history of the Company, providing confidence that consideration has been given to historical acquisitions/divestitures, formerly-occupied sites, and off-site disposal of waste (e.g., “potentially responsible party” matters).

In addition to its diligence professionals, Aeterra has in-house technical experts in our Regulatory Compliance and Site Investigation and Remediation departments, to partner with the Company in conducting permit and compliance audits and assisting with corrective actions. This can include ensuring appropriate environmental permits have been secured, the required reporting is conducted, and EHS plans and programs are in place and up-to-date. For industrial companies, key considerations can often include permitting (e.g., air, wastewater, and stormwater), hazardous waste generation and management, overall EHS management and violation history, and per and polyfluoroalkyl substances (PFAS), among others.

Even if new issues are identified that cannot be completely resolved before closing, we can help box the issue to give a Buyer a timeline and expected cost, again to minimize or eliminate negotiation issues. Typically, if the sell-side diligence is commenced within 4-6 months of the transaction, issues can be corrected in that timeframe, and even if not fully corrected, the seller is able to control the messaging around the matter.

From our comprehensive understanding on the buy side, we also understand the type of EHS information and documentation a Buyer will expect in a virtual data room, and we are well-versed in assisting our Clients with preparing and gathering such information and documentation, as well as providing assistance and/or responses to buy-side environmental diligence requests.

Our Clients have also found exit success using our proprietary cloud-based digital platform, Aeterra Workspace. Not only is Workspace a tool that is used in portfolio management on a day-to-day basis for operating companies, as it is a centralized hub, it is frequently used to aggregate EHS reports, permits, data, and supporting documentation, for ease of uploading to the data room, and sharing information and documents with Buyers.

Aeterra is here to partner with you on your next sale; with our vast expertise in this process, your next one can be seamless, and one without EHS surprises.