EHS Support was contracted to direct and manage the due diligence associated with the acquisition of a $400 million North American pressure treated wood business. The target company manufactures and distributes treated wood utility poles as well dimensional lumber at over 50 locations in North America.
The target portfolio consisted of both operating facilities and historical assets located throughout the United States and Canada. Some sites have been in operation for over 100 years. The challenge was to quantify the total potential current and future environmental cleanup liability, including off-site liability, and to identify alternatives to minimize and eliminate future financial risks for the company.
The effort required an accelerated schedule which included coordinated site visits at facilities in the United States and Canada. Quantifying historic liability associated with past site operations was critical to the deal negotiation and eventual closing. A probabilistic risk model was developed to address the site-specific issues at each of the primary treating facilities in the portfolio. Results of the financial model were then converted to a cash flow evaluation and discounted for present value to better define the impact of the remedial liabilities on the annual cash flow of the company and to determine the overall impact on their return on investment.
Project Background
Our client identified a strategic acquisition target, a privately-held, North American pressure treated wood business. The target company manufactures treated wood utility poles as well dimensional lumber.
Work Scope
EHS Support conducted the following tasks:
- Reviewed and summarized over 30,000 pages of technical and environmental information made available by the seller in an online data room
- Interviewed knowledgeable persons regarding the company history and environmental matters
- Evaluated risks of operating facilities and neighboring properties upon the subject property
- Conducted on-site visits of selected high-risk or representative facilities to view present conditions (chemical spill residue, die-back of vegetation, etc.); hazardous substances or petroleum products usage (presence of aboveground or underground storage tanks, storage of acids, etc.); and evaluated any likely environmentally hazardous site history
- Reviewed federal, state, local, and tribal records out to distances specified by the ASTM E1528 and All Appropriate Inquiries (AAI) Standards
- Developed conceptual site models for those locations with identified soil and groundwater impacts and quantified data gaps in the existing remedial strategies
- Presented the findings of the diligence, including the financial modeling, to the company’s board of directors
- Interacted with inside and outside counsel as well as the Chief Financial Officer to leverage the diligence findings for a favorable purchase price as well as key representations and warranties in the purchase agreement
- Worked closely with senior management team to develop risk management strategies to address the identified environmental liabilities
- Post close, worked with internal counsel and management to develop the environmental reserves for the acquired company
Project Result
The acquisition was successfully completed; the environmental liabilities were identified, quantified, and addressed in compliance with the International Financial Reporting Standards as part of the closing financial reserves. The project was completed under an accelerated schedule, with EHS Support participating as a key member of the company’s due diligence team. The ability to quickly review voluminous files, address data gaps, and model the financial risk for known and potential environmental liabilities on multiple sites, assisted the client in ensuring a fair purchase price and a full understanding of known and potential future environmental exposures.