Federal and State laws contain numerous restrictions and penalties regarding pollution of the environment including land, water, and air. Many of these provisions place liability on the present landowner or operator even if the offense is traced back to an event prior to their ownership or tenancy. For this reason, understanding the history and status of a company’s potential violation of environmental laws is a primary consideration for buyers in M&A transactions
Buyers can protect themselves by adhering to the EPA’s “All Appropriate Inquiries Rule” which was discussed in our prior Deal Note® published on April 4 of this year. However, we counsel our clients to take a proactive approach and fully understand their exposure before entering a sales process. For that reason, we strongly encourage sellers to conduct an environmental audit as soon as they begin considering selling their company.
Environmental audits are usually performed by 3rd party consulting firms and begin with a documentation review, known as Phase 1. If that step indicates a likelihood of contamination or violations, Phase 2 can be engaged which typically involves testing. If problems are found, the audit can progress to Phase 3 consisting of remediation or other corrective actions.
As with other aspects of selling a business, buyers’ bids will be higher when they believe the risk of later surprises is low, and that includes potential liability related to environmental issues. Better to know upfront than discover it later.
Have a great day everyone!
Managing Director, Aerospace