Pre-acquisition Diligence Support for a Large Private Equity Firm

Antea Group was commissioned by a large private equity firm to assist in pre-acquisition diligence of a retailer. The acquisition was a bid situation, wherein the client’s team was working towards a pending bid submittal with a specific deadline established by seller representatives.

Approximately two weeks were allowed for the diligence work, forcing a non-stop, focused, high-level analysis of the client's potential exposures, risks, and concerns from an environmental, health, safety, and sustainability (EHS&S) perspective. The client’s team typically takes a holistic view of EHS&S, needing a broad look at topics beyond immediate violations or compliance issues and extending into topics such as corporate programs, management qualifications, supply chain practices, essential resourcing, operational continuity, and planned operational changes.

Further, the client's EHS&S team is very astute and forward thinking, anticipating not only downside risks but also post-acquisition planning and targeted value creation capital expenditures. With that, Antea Group’s diligence required anticipation of program development, operational improvements, new training programs, and management initiatives for the client’s consideration and implementation post-acquisition.

In general, Antea Group’s tasks included: 

• Data Room – review of seller provided documentation 
• Online research to a variety of sources (e.g., government agencies, etc.) 
• Management call with target management and legal counsel 
• Commercial database(s) procurement and review 
• Site visits to select sites 
• Interim reporting – red flags 
• Interim downloads and readouts 
• Final reporting at conclusion of diligence period 

Antea Group’s diligence approach cast a wide net across a variety of EHS&S topics, all based on input from the client, its investment thesis, the deal structure, schedule, post-acquisition plans, risk tolerance, size of the deal, and overall materiality resulting from these factors. Topics reviewed include: 

• EHS and food safety management structure, personnel, approach, philosophy, programs, training, and metrics 
• EHS permitting and compliance 
• Known or suspected subsurface liabilities, as well as any reserves that have been taken 
• Known or pending EHS and food safety compliance violations and anticipated capital expenditures;  
• Operational continuity risks 
• Transportation – supply chain fleets, product deliveries, risk management 
• Product liability – broad inquiries around known or pending issues with products, phasing out of ingredients, specific ingredient regulations 
• Water source quality 
• Food Safety – on-site observations of sanitary design, equipment maintenance, employee hygiene, sanitation, foreign material control, Hazard Analysis and Critical Control Points (HACCP) compliance, and food safety culture 
• PFAS – understanding supply chains, water sourcing, packaging 
• Worker safety – accident records, complaints, pending litigation 
• ESG topics identified as a priority for the target sector: 
• Water 
• Energy efficiency, clean energy, and fleet optimization 
• Supply Chain – human rights 
• Assurance of greenhouse gas (GHG) emissions data and climate 
• Sustainable packaging and waste diversion 
• Packaging – circularity 
• Animal welfare 
• Governance and Reporting: California SB253 and 261; Energy Saving Opportunity Scheme (ESOS) (UK) compliance; and EU CSRD 

Due to the size and global structure of the target, Antea Group’s diligence work focused on owned operations within the U.S. and Canada. However, global operations were considered at a high level with concerns over operational consistency, local country-specific regulations outside the U.S., brand exposure, supply chain, and some broad sustainability topics. To assist in its review, Antea Group utilized in-country expertise throughout the world through its global partners collectively situated under the Inogen Alliance (https://www.inogenalliance.com/). 

Lastly, to supplement Antea Group’s diligence work, Antea Group accessed its Environment, Social and Governance (ESG) data provider to curate a report specific to the target’s operations world-wide, offering unique insights to various risks associated with the global operations including pending and past litigation, brand risks, geopolitical factors, and supply chain issues. 

In a period of 16 days, a comprehensive summary report was issued to the client and its legal counsel, summarizing and monetizing the most material issues necessary to help consummate the deal. In addition, post-acquisition planning was outlined with associated capital expenditure such that budgetary carve-outs would be available to the asset management team post-acquisition.

Daily updates and interim summaries were provided throughout the course of the 11-day diligence period to allow the client’s legal counsel and deal team to understand in real time any red flags identified as well as downside risks that could materially affect their thinking with respect to the investment thesis, target valuation, and post-acquisition operational planning.  

Through its reporting, presentations, and read-outs to the deal team, Antea Group was able to get the client comfortable with the issues to the point where the bidding process could move forward, appropriately considering EHS&S concerns, risks, and required investments to meet it investment thesis intentions.