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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.
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