Due Diligence and Liability Assessment for Acquisition of a U.S. Manufacturing Firm.
Background. DCA was retained as part of a team conducting due diligence and an assessment of asbestos, environmental and product liabilities on behalf of a foreign private equity fund buyer seeking to acquire a U.S. electronics manufacturing firm. The environmental liabilities of the electronics firm originated from over 500 sites that included open/active sites with ongoing investigation and/or remediation; closed sites with and without potential re-openers; sites with potential toxic tort issues; and sites with no currently known liability.
Risk Exposure. Failure of the buyer to adequately define, quantify and manage the environmental liabilities (as well as the asbestos and product liabilities) could have exposed the buyer to significant post-transaction financial obligations that would have seriously compromised the buyer's investment strategy.
Resolution. Because of the compressed time frame for these negotiations and the lack of detailed information concerning the sites, DCA developed a “triage” strategy that focused on defining and quantifying those environmental liabilities with the greatest uncertainty and/or the highest probability of occurrence.
Results. The results of this asssessment indicated potential environmental liabilities for the buyer could be up to two times the $90 million estimate developed by the manufacturing firm’s own consultants. The deal was aborted in part because of the inability of the buyer to obtain a suitable risk transfer mechanism for the environmental liabilities.
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