Environmental risk management strategies for mergers and acquisitions

December 7, 2015

As commonplace as they are, business transactions like commercial real estate sales, mergers and acquisitions can get complicated when there are potential environmental liabilities on the table.

These complexities are born out of opposing goals between sellers, who may be carrying known liabilities on their books, and buyers looking to insulate themselves from potential environmental issues.

While buyers hope to negotiate deals that shield them from legacy problems and protect them against unexpected issues in the future, sellers seek agreements that limit their post-closing exposures. Luckily, there are several strategies buyers can use to gather as much information as possible about past problems and presumably clean assets, all while moving toward a successful closing.

Abbi Cohen, partner with Philadelphia environmental law firm Dechert LLP, weighed in on these strategies during a panel discussion at the fall meeting of the American Bar Association's Section of Environment, Energy and Resources in Chicago, as reported by Bloomberg BNA.

One important strategy for buyers, Cohen said, is to look closely at the Phase I environmental site assessments during the risk assessment process, then compare them with other publicly available resources.

These resources can include disclosures made to the Securities and Exchange Commission and other environmental agencies. Cohen suggests using these documents to complement one another, rather than relying on simply one or the other, to get a complete picture of the assets being acquired.

There are also a host of digital research tools Cohen says buyers can use to determine whether the sites have been the subject of previous litigation or investigation. While much of this information is publicly available, it can be incredibly difficult to decipher. By working with environmental consultants, buyers can benefit from their expertise in every aspect of environmental site assessment, including:

  • investigating all relevant environmental concerns within the project scope
  • promptly communicating any environmental concerns upon discovery which may significantly impact closing or alter the scope of work
  • compiling and presenting findings in a clear and concise manner, allowing buyers to more easily make informed decisions before property transfer.

In every real estate transaction, buyers must ensure their interests are protected. By scouring the documentation and performing their own extensive risk analysis, environmental consultants can help buyers avoid late transaction surprises and expedite the closing process.