Why Environmental Due Diligence Matters
Environmental liabilities can significantly impact the value of M&A transactions. Proper due diligence protects buyers from unexpected costs and helps structure appropriate deal terms.
Phase I Environmental Site Assessment
The standard starting point for environmental due diligence includes:
Records Review
- Historical property use
- Regulatory compliance history
- Permits and violations
- Previous environmental reports
Site Reconnaissance
- Visual inspection of property
- Identification of potential contamination sources
- Assessment of neighboring properties
- Interview with key personnel
Regulatory Database Search
- Federal, state, and local environmental databases
- Underground storage tank registries
- Hazardous waste generator lists
- Brownfield and Superfund sites
Phase II Investigation
When Phase I identifies potential concerns, Phase II involves:
- Soil and groundwater sampling
- Vapor intrusion assessment
- Asbestos and lead paint surveys
- Wetland delineation
Quantifying Environmental Liabilities
Remediation Costs
Estimate cleanup costs for identified contamination, including:
- Investigation and characterization
- Remediation technology selection
- Long-term monitoring
- Regulatory closure
Compliance Costs
Assess costs to bring operations into compliance:
- Equipment upgrades
- Permit modifications
- Training and procedures
- Ongoing monitoring
Deal Structure Considerations
Environmental findings can influence:
- Purchase price adjustments
- Escrow arrangements
- Indemnification provisions
- Representations and warranties
- Environmental insurance requirements
