Previously published in Waste and Recycling News
So you think you may want to sell your business sometime soon? The first thing: Get your house in order. Potential buyers are going to look with a critical eye when determining the value of your business and its liabilities. Anticipate the concerns of a buyer. This will place all parties on road to completing the deal.
A seller needs to understand the environmental laws governing the operations and its impact on a deal. The seller should know what to disclose. Some states have laws requiring a property owner to report spills. Other states may impose post-transaction obligations on the buyer or the seller. Having this basic understanding can help establish a realistic timeframe.
In a stock deal in which the buyer purchases all the equity in the organization, the buyer steps into the shoes of the seller, and thus will assume all the environmental liabilities. No excuses and no defenses. In an asset transaction in which the buyer purchases all, or substantially all, of the seller's assets, there are a number of legal theories that peg the buyer with "successor liability" (i.e., makes the buyer responsible for the past sins of the seller). These theories are better addressed in a separate article, but it is safe to say buyers are, and will be, concerned with successor liability issues.
What is a seller to do? Plan and anticipate.
The seller should retain an experienced environmental consultant. Without having the consultant write a report (which may one day be used against you), have the consultant review your property and day-to-day operations for any areas of concern.
It is amazing how housekeeping chores will speed up the buyer's due diligence process. Power wash the floors around any storage tanks, move chemicals to appropriate storage areas, clean sinks, remove obstacles from drains and ship waste offsite for disposal.
The buyer's environmental consultant will see the same concerns. And you can bet the buyer's suggested remedial efforts are going to be more extensive and more expensive. Take the time to clean up before a potential buyer comes to your property. It will save time and money in the long run.
Spend the money to have the consultant develop an environmental assessment report, called a Phase I, for all property involved in the transaction. This assessment outlines areas of concern, such as contamination of all or a portion of the property, the use of unknown fill or historical data showing questionable prior uses of the property. If the seller is aware of these issues and can anticipate the buyer's concerns, there will be no surprises later.
If the Phase I reveals a possible nasty matter (a spill that has not been properly remediated, background contamination evident throughout the site, etc.), don't hide it. Within the confines of the law, the seller should disclose such matters; they will eventually come out anyway. Your environmental consultant, working with your counsel, should be able to assess the impact the areas of concern will have on your potential sale.
Environmental due diligence can take up to six months to complete. An updated Phase I by a reputable environmental consultant can significantly shorten the due diligence process. In addition, the seller's Phase I can be used to establish a baseline of the condition of the real property upon the sale or the lease. It also can be used to defend a claim brought by the buyer in the future.
From a seller's prospective, a little bit of planning, a little bit of money, and a little bit of preparation can go a long way toward closing a deal.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
