Providing support for major business transactions is arguably the most important strategic responsibility of an EH&S manager. The potential cost savings (if done correctly) or liabilities (if done poorly) can be enormous. A company may bet its future success on a single business acquisition or merger. Even purchases or divestments of plant and equipment can have a profound effect on a company. This is the final installment of a three-part series on business transactions. In Part 1, we explored the politics of “doing the deal” and some best management practices of leading companies based on a survey by Competitive Environment. In Part 2, we examined specific approaches to business risk assessments. In this column, we analyze the value of environmental management system assessments in merger and acquisition activities.
As noted in Part 1 of the series, many mergers and acquisitions undertaken in the past five years have not achieved
their planned business objectives. The record pace of business transactions will in all likelihood continue, so any means to help provide better shareholder return makes good business sense. A promising new approach is to incorporate a review of the environmental management system (EMS) during due diligence activities.
TRADITIONAL DUE DILIGENCE IS NOT ENOUGH
Why assess an EMS? There are two underlying reasons: First, one can minimize future liabilities by gaining an understanding of how the target company maintains environmental compliance; second, one can develop an action plan for successful assimilation of the two companies’ operations. A standard Phase I ASTM Standard Practice for Environmental Site Assessments1 assesses potential property liabilities, but sheds little light on potential future environmental operational liabilities and the resulting impact on business goals. The acquiring company may have higher environmental performance standards than that of the target company. Future resources (human and capital) should be factored into the evaluation of the deal. Dow Chemical, for instance, uses an EMS review during acquisitions to
shorten the time needed to bring the acquired company up to Dow’s standards.2 Similarly, PPG Industries focuses on “managing the integration of an acquisition into the existing organization, deciding what will and won’t be integrated, and devising a plan to accomplish it.”3 The EMS review can provide a clear picture of current operations, especially if the EMS has been custom-built and thoughtfully integrated into the business. Basic business intuition tells one that well-managed companies are more likely to succeed. EMS programs can span a broad spectrum, from a sophisticated system with elaborate data management and software systems to a simple environmental policy statement. Not surprisingly, several studies have shown that companies with successful environmental management systems have also been financially successful.4,5.