Completing a Comprehensive Due Diligence Assignment for a Middle Market PE Firm
Antea Group was retained by a middle market private equity firm to conduct a comprehensive due diligence assignment for their acquisition of a family-owned chemical distribution company (target). The target included two facilities. One was focused on specialty chemical blending and distribution and the other on large volume petroleum lubricant re-packaging and distribution. The objective of the project was to advise the client of environmental, health, and safety (EHS) related risks, liabilities, and value creation opportunities for the acquisition of the target’s business.
The due diligence assignment was interesting, unique, and challenging from the following perspectives:
- The client requested that the work be conducted in a condensed timeframe to meet an end-of-year closing.
- The client requested a compliance evaluation of the target’s fleet vehicle distribution (trucks, rail cars, semis, operators, training, etc.), using in-house resources.
- The client requested a review of Environmental, Social, and Corporate Governance (ESG) risks, using Antea Group’s Sustainability Transaction Assessment Report (STAR) screening process.
- One of the two target facilities had an extensive history of site contamination (soil and groundwater) being remediated under the state-run Voluntary Cleanup Program (VCP), which had to be summarized and evaluated for post-acquisition risks and liabilities for the client.
- A comprehensive review for Per- and polyfluoroalkyl substances (PFAS) risks was conducted in accordance with Antea Group’s standardized guidance for evaluating PFAS risks during due diligence.
Antea Group successfully completed the due diligence work, on time and within scope. Tasks completed include the following:
- Virtual Data Room (VDR) review – detailed review of project documentation, incorporation into overall risk and liability evaluation
- PRP Search – Potential Responsible Party Search (USEPA CERCLA responsibility), completed through Antea Group’s database provider EDR
- Phase I ESAs – Traditional ASTM Phase I ESA reports for two separate facilities associated with the target portfolio
- MCRs – Traditional Material Compliance Reviews for two separate facilities associated with the target portfolio
- PFAS – a review for PFAS risks
- STAR/ESG review – ESG risks, liabilities, and value creation opportunities
- Interviews with target management - both in person as well as via teleconference
- Executive Summary Memorandum report – summary of risks and liabilities
- Deal support and senior risk consultation
- Support with insurance underwriting teleconference reviews
Short of conducting actual sampling work or a Phase II ESA, this project scope represented as comprehensive a due diligence scope as could be contemplated from an EHS perspective.
The client successfully closed on their acquisition on schedule. Antea Group advised the client of the potential ESH risks, liabilities, and value creation opportunities as originally designed in the project scope. All risks and technical data were quantified and translated into business-friendly summaries so the client could factor the risks into their financial modeling. Real-time updates were provided throughout the process, allowing go/no-go decisions to be made during the due diligence period according to the client’s risk tolerance. While uncertainties were apparent with some issues, Antea Group performed deeper dives to better characterize these issues, allowing the client to gain a comfort level with the risks. This allowed them to move forward with confidence that the issues could be managed within their financial modeling.