Divestitures
Pilko’s sell-side global transaction practice is based on two major activities, the preparation of an EHS Assessment report which is made available to potential buyers and covers the EHS aspects of the business as well as serving as an advisor to the seller on all EHS aspects of the planned sale.
The EHS report is prepared using the Three Bucket® model with disclosure of issues that will be of concern to a potential buyer, including EHS issues managed at the site, the division and the corporate level. The objective of the assessment is to conduct it from a buyer’s perspective to surface important EHS issues that could delay or sidetrack the planned divestiture. The EHS report establishes priority by identifying the material EHS issues including issues related to compliance with requirements, contamination issues and Capex expenditures into the future. Failure to help guide bidders to the key issues may frustrate the sale process rather than facilitate it.
But the report is not just about all the costs and problems associated with the business. The report presents a balanced picture of the EHS management of the business. Selling companies make significant investment in the people and the systems that manage EHS issues. The report presents a balanced picture of both the risks and liabilities as well as the EHS corporate governance elements and the management systems that have been implemented in the business for sale. Ideally, the bidder concludes that the EHS issues are understood and managed in an appropriate manner.
The EHS report is prepared and available prior to the opening of the data room and is often seen as the roadmap as it serves as the management report that makes sense of all the technical documents and reports that support it. It is critical to begin the sell-side due diligence early, as early as four months prior to a data room opening, because key issues from a buyer’s perspective may be unknown to the Seller’s deal team. These issues need to be uncovered, brought to the deal team with a plan to position them in the sale, and the deal leader needs to get comfortable with them. Any sort of last minute issues often require some time to address, which is at a premium in a sale process.
Pilko’s advisory work includes assisting sellers with other EHS aspects of the divestiture process including question and answer sessions, expert meetings, assistance with the negotiation of EHS provisions and the implementation of risk-shift strategies such as environmental insurance. Pilko also supports other divestiture-related actions such as data room assistance and helping manufacturing sites prepare for bidder site visits.
EHS issues can be a key source of value creation (or destruction) during a transaction. Our experience is that 5 to 30 percent of the value of the deal is potentially at stake depending on how buyer and seller handle the issues. Properly managing these issues in a divestiture will ensure that the seller captures as much of the value as possible.