Due Diligence Process and Methodologies – How is it Done?
Lehmberg, Laurie (Texas Instruments)
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Due diligence in acquisitions is all about knowing what you might be buying, thus you must identify and quantify material or significant risks; properly value the liability; and frame the deal to shift or insure against risks by contract or other mechanisms. A comprehensive environmental, safety, and health (ESH) due diligence effort can be a significant undertaking but there are a lot of good reasons to consider the aggressive assessment of ESH issues at an early stage of the transaction. These actions help provide assurance that on-site or disposal/recycle facility contamination issues are better understood; that the potential for worker/neighborhood toxic torts have been evaluated; and that current compliance problems and future compliance costs have been identified and valued. The best argument for early assessment of ESH issues is that quite often, fundamental decisions regarding the desirability of the deal, the appropriate legal/financial structure, the scope of the acquisition, and valuation tend to “harden” with the signing of the Acquisition Agreement. In other words, even when one can wait to dig into the ESH details, information obtained during post-Agreement due diligence may arrive too late to effectively influence the deal. Therefore, it is important for ESH professionals to sensitize the acquisition team to the significant risks that ESH liabilities may pose to the deal assumptions.