2016 Middle Market M&A Outlook – What are the Environmental Due Diligence Trends we are seeing?

By: Bruce Martin

2015 was a strong year for middle market mergers and acquisitions (M&A), and according to KPMG’s 10th annual M&A outlook study, executives and dealmakers expect the M&A market to remain robust in 2016. Likewise, Pitchbook Data reports, in their 2015 year-end Annual U.S. PE Middle Market Report, that dealmakers predict “a relatively robust future pipeline of private equity deal flow in the middle market…,” with portfolio companies increasingly relying on “add-on deals to pad growth trajectories,” and strategic acquirers seeking more “accretive and synergistic deals.”

Results from the KPMG study indicate that mergers and acquisitions will continue to be the preferred method for growth among executives. Indeed, 91 percent of the over 550 survey participants state they expect to initiate at least one acquisition over the course of the next year, a 10 percent increase over last year’s results. Moreover, 42 percent of these dealmakers intend to initiate at least five mergers and acquisitions this year.

With increased middle market M&A activity, what trends are we seeing in environmental due diligence?

  1. Buyers are increasing due diligence activities prior to the exclusivity period. In fact, many of our clients, especially those who invest in “dirty” industries (e.g., industrial manufacturing, chemical businesses), are reaching out to environmental diligence providers  before they even submit a Letter of Intent, to review materials and perform high level environmental overviews of target companies. This allows them to be better prepared in management meetings from an environmental perspective, while also improving their position in negotiations during auction processes.
  2. Sellers are becoming better prepared. Recently, EHS Support has performed an increasing number of environmental evaluations for business owners and dealmakers preparing for divestitures of their companies. Performing sell-side environmental evaluations and summaries allows the seller to stay ahead of the environmental due diligence process and control the quality and flow of information of environmental matters provided during diligence.  Likewise, in situations where we are representing a buyer, we have witnessed more sellers coming prepared with environmental reports ahead of the due diligence period. In these situations, it is important to review the seller-provided information for completeness and accuracy.
  3. Buyers are increasing their reliance on representations and warranties, as well as environmental insurance. This allows for increased confidence around what buyers may have been missed during due diligence.

As the growth in middle market M&A continues to build, buyers and sellers will find 2Q 2016 to be an increasingly competitive time for M&A.  Please do not hesitate to reach out to us to speak more about how to stay ahead of the game from an environmental perspective. For information on how EHS Support can help you manage environmental due diligence, please contact Bruce Martin or Kaity Templin.

Bruce MartinABOUT THE AUTHOR As a certified professional environmental auditor (CPEA), Bruce Martin has 23 years of varied experience in environmental management consulting, including environmental, health and safety auditing; merger and acquisition environmental due diligence; environmental management systems; site assessments, training, and environmental investigations… Read More

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