Innovation is a driving force behind the rapid expansion of the global marketplace. And it’s not only fueling the development of new technologies and startups, but also more transactions as growing organizations look to buy rather than build new offerings or capabilities from the ground up.
In fact, 2016 saw worldwide mergers and acquisitions (M&A) total $2.5 trillion. In 2017, companies announced more than 50,600 transactions with a total value of $3.5 trillion, and the M&A momentum shows no signs of slowing down.
Looking ahead to M&A trends for 2018, Deloitte surveyed more than 1,000 corporate executives and private equity investors in the fall of 2017. They found that about 68 percent of executives at US-headquartered corporations and 76 percent of leaders at domestic-based private equity firms say deal flow will increase in the next 12 months.
If your organization is on track to be part of this growing trend, our question to you is: Does environment, health, and safety (EHS) and sustainability have a seat at the M&A table? If not, you’ll likely miss out on valuable insights that can help ensure a smooth process from start to finish.
Below are key areas where an EHS perspective can provide crucial transaction support and help drive better business results.
Enhancing the Due Diligence Process
It’s no secret that due diligence is a critical step in any transaction, helping ensure all parties have a full understanding of the liabilities and risks associated with the deal. However, EHS liabilities are often overlooked in a variety of areas including:
- EHS operational permitting and compliance: Business continuity post-acquisition is essential, and EHS permitting can create barriers and interruptions if not evaluated during the due diligence period. If your plan calls for ceasing, moving, or expanding operations at a facility, permits requirements can be impacted, posing liabilities or interruptions.
- Unique cultural nuances: If you’re planning an international merger or acquisition, cultural competency is a must as you’ll likely encounter unique customs, expectations, or barriers that go beyond compliance. These nuances could include understanding the local views on the role of women in the workplace, working with the culture of time, and dealing with any social risks unique to the area.
- Business liabilities: Often overlooked is the potential for EHS liabilities associated with previously owned properties--reviewing current assets alone may not capture some of the most material liabilities lying dormant. For example, a document review might uncover a previous operating address where high volumes of chlorinated solvents were used with no record of environmental investigations. As a result, a significant risk can be avoided, since a buyer may have been exposed to liability should any contamination issues have later come to light.
- Third-party risks: EHS risks associated with impacts to third parties are often the most significant in terms of their material impacts on a deal. Product liabilities (e.g., products containing PFAs, or environmental exposures to building products for example) are good examples of third party environmental risks that have the potential to dwarf more traditional risks associated with a transaction.
Other EHS due diligence topics that can be addressed include current EHS management systems and EHS triggers associated with lease exit provisions. By leveraging your in-house team or an EHS consulting firm’s expertise during the due diligence phase, you can get a fuller picture of potential risks and roadblocks, as well as proactively plan for what needs to happen after the deal is signed.
Case Study: Delivering Real-Time Due Diligence Results
Streamlining EHS Integration
EHS programs are most successful when they’re rooted in company culture, but when it comes time to bring a newly acquired asset into the company fold, many organizations are not prepared to integrate their EHS programs.
When incorporating a smaller company into a broader corporate family, you often find that lack of resources or desire on the part of the previous owners resulted in little or no EHS presence. For larger acquired companies, the EHS situation can range from disorganized to fully embedded and unique to their organization’s subculture, and everything in between.
However, the challenges and opportunities that come with either scenario can be more effectively addressed if EHS professionals are looped in from the beginning. From assessing the current state of a potential asset’s program and culture, to proactively developing an implementation roadmap, an EHS expert can help ensure a smoother transition for employees, and better manage risks and compliance.
Preserving Business Continuity
But perhaps the greatest value of considering EHS and sustainability from initial due diligence all the way through to post-acquisition integration is in avoiding business interruption, accelerating integration, and paving the way for further growth. In this way, companies draw the circle wider to proactively address new compliance requirements and identify safety, environmental liability, and sustainability risks—all of which will ultimately help preserve continuity post-transaction. This approach is crucial to reducing overall business risk and making the transaction a success by all measures.
Learn more about how Antea Group approaches mergers and acquisitions, supporting our clients from due diligence all the way through to successful integration, on our Transaction Support page and contact us if we can be of service.
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