My partner Bob Melvin and I recently gave a presentation on environmental, health, and safety considerations in mergers and acquisitions. While it would be impossible to cover our entire presentation in a blog post, I thought it would be good to highlight a few important environmental considerations in developing, negotiating, and finalizing corporate deals.

  • Consider the Scope of Due Diligence. When purchasing a business or division, consider not only properties that are currently owned and operated by that business, but historic properties as well. Phase I Environmental Site Assessments can help you learn about a property’s past and present, but, when conducted properly, they can also help you maintain legal defenses against future liability. It is important to consider the purpose for which you are conducting a Phase I, including preserving your ability to defend against liability, before you develop the scope of the assessment.
  • Liability Associated with the Structure of the Deal. Generally speaking, we think of stock deals as accomplishing a transfer of all assets and liabilities, while liability transfer in asset deals may be more carefully limited. However, legal theories of successor liability may serve to undo even the best laid plans for allocation of liability. You may want to consider the structure of the deal and how it could be interpreted under legal theories that could impose successor liability even in apparently structured asset transactions.
  • Evaluate Potential Risk Transfer Options. In cases where neither the buyer nor the seller is interested in assuming environmental obligations, risk transfer may be an option. An Environmental Risk Transfer (ERT) entity may be willing to purchase environmental liability, including environmental investigation and remediation obligations, as well as to provide an indemnity for environmental and remediation risk. The arrangement may or may not involve land transfer, but it typically involves the ERT entity entering into any required orders and securing all required permits. ERT entities back the indemnity with a number of financial tools, including insurance, fixed price contracts, escrow accounts, and using purchased assets as collateral.
  • Separately Consider Emerging Environmental Issues. Emerging environmental concerns—like PFAS—may need to be treated differently than well-worn environmental issues. Emerging contaminants may not yet be legally defined as hazardous, and discharges may not be a violation of environmental law, just because the statutory and regulatory amendment process takes time. It is important to separately consider emerging environmental concerns, how they play into the deal, and how to address them in the contract documents so that they are not inadvertently excluded.