Why Early Environmental Planning Matters
Introduction
In M&A, especially for manufacturing businesses, environmental due diligence is a crucial, often underestimated factor that can delay a transaction. Early planning can help avoid costly delays and ensure smoother closings.
The Hidden Risks in Older Properties
Buildings that have housed various operations over the decades often carry unknown environmental risks. Even facilities that appear clean can harbor contamination beneath the surface — such as oil-saturated woodblock floors — that triggers red flags during inspections.
Timing Is Everything
Delaying environmental assessments can derail transactions. Phase I Environmental Site Assessments (ESAs) should be updated regularly — ideally well before entering due diligence. If issues surface, additional testing (Phase II) and potential remediation can add months to the closing timeline.
Solutions when Issues Surface
When contamination is found, sellers and buyers often establish an environmental escrow. In a recent client’s case, setting aside funds for remediation allowed the transaction to proceed while protecting both parties’ interests — but it also temporarily reduced the seller’s proceeds at closing.
Specialized Legal Expertise Is Essential
Environmental legal language is highly technical. Sellers should:
- Hire attorneys who specialize in environmental law
- Ensure clear responsibility is outlined in the purchase agreement
- Document all findings and agreements to avoid future liability
The Impact on Deal Value and Timing
Environmental issues don’t necessarily kill deals — but they almost always impact timing, legal costs, and perceived risk. Buyers and lenders demand certainty. Sellers who proactively address environmental concerns strengthen their position and protect business value.
Conclusion
Environmental diligence isn’t just a compliance task — it’s a key part of protecting your sale value and ensuring a timely closing. Business owners should assess environmental risk early, update their Phase I reports regularly, and engage an M&A firm, like Osage Advisors, to help navigate this critical hurdle with confidence.
Certain Members of Osage Advisors are Registered Representatives of and conduct securities transactions through StillPoint Capital, LLC, Tampa, FL. Osage and StillPoint are not affiliated.
Osage Advisors provides a lot of guidance in the M&A market here on our blog and on our YouTube channel and Podcast.
