Product Stewardship Due Diligence

Transcription

1 Product Stewardship Due Diligence Best Practices for Product & Chemical Compliance Due Diligence in Mergers & Acquisition Wayne Bergin ERM New York, NY

2 Agenda What is product stewardship due diligence? What are the obstacles to effective diligence? Strategies to do it well? Post merger integration

3 What is Product Stewardship Due Diligence?

4 The Business Case for Product Stewardship Due Diligence 2015 was record-setting year for announced deals - $146B in chemical sector alone 59% of multinationals intend to pursue acquisitions in 2016 Gaps in product stewardship during M&A can result in lost sales & potential millions of dollars of fines New line of business Enhance IP Expand geographic reach

5 The Business Case for Product Stewardship Due Diligence If a target for a proposed Why Bother? acquisition s products can not legally be sold then this impacts the overall value of the acquisition

6 Examples of Transactions The small bolt on Small company/ start up Localized sales or possibly a regional presence New products or technology Ad hoc programs Often exhibits gaps in stewardship Often not prepared for international sales Large multinational spin off Sophisticated programs & experienced staff but Registration and approvals may be split over multiple legal entities Unique chemistry registrations may go with deal But what about approvals needed by other seller businesses not in the spin off PS staff included with deal? The spectrum of deals

7 Deals What is Due Diligence? Google: (n) reasonable steps taken by a person in order to satisfy a legal requirement, esp. in buying or selling something ISO: comprehensive, proactive process to identify the actual and potential negative social, environmental, and economic impacts of an organization s decisions and activities over the entire life cycle of a project or organizational activity, with the aim of avoiding and mitigating negative impacts Be sure you know what you are buying before you buy it

8 How do the Deal Makers Think About Diligence? Due Diligence Questioning Throughout the Transaction Process Are some businesses riskier than others? How can we get compensated for these risks? How can we monitor our risk reduction protocols? Planning Selection Analysis Negotiation Closing Integration What businesses are out there that fit within our criteria? What are the risks with this business? What control measures can we put in place to protect our investment?

9 What to Focus on in Diligence? Compliance Risks Current status of compliance Governance programs License to operate Customer requirements IT systems Hindsight Present Foresight Legacy Liabilities Historic enforcement action Regulatory inspections Adverse effects claims Past (or current) litigation Future & Integration Challenges Impending regulatory changes Integration requirements Constraints to growth Consolidation/expansion needs

10 Obstacles & Success Factors for Effective PS DD

11 Scope Regulated topics Chemical regulations GHS Product regulations Other

12 Scoping tools Knowing everything about everything is expensive & time consuming! We work with our client to select: Regulated topics Selected based on how the industry is regulated Jurisdictions Home geography and a few hard ones

13 Confidentiality Seller & Acquirer in many cases are competitors There are always data the Seller/Target would like to keep confidential Uncertainty deal will progress The deal itself needs to remain confidential

14 PS versus EHS diligence The EHS field s scope, nomenclature and approach is routed in ASTM Phase I standard PS diligence has no such set of guiding principles A PS program is generally not facility based

15 The Standard Toolbox Diligence projects generally involve some of, or all of, the below steps: Initial desktop screening Dataroom review Screen of all publically available information Marketing material review PS Program Overview Interview SME/ Jurisdictional Interview(s) Data requests and further documentation review to verify Reporting

16 The Staged Approach Useful to give early feedback to the deal team Useful in competitive bidding deals Useful if there are clear gaps which need to be explored Useful is the Target is evasive

17 Focus on Topics Programmatic Questions Company Layout Regulated Topic Questions Other

18 Sell Side Diligence Objective: Provide buyers reporting in which issues and facts are described, and framed sufficiently that the buyer s diligence team have little reason to conduct further diligence. Useful if: Seller has strong programs Multi buyer auction process Situations where a seller wants to avoid interruptions to the running of the to-be-divested business

19 What About When the Deal is Done?

20 Product Stewardship - Post Merger Integration (PMI) Objective of diligence is to Problem provide a snapshot of the as is company PS PMI = New Company = Acquirer + Target Target company compliance gaps; Acquiring company business objective(s): new market geographies new products New post acquisition company s legal entity structure (possibly involving legal entity rationalization) & geographical coverage Synergies Often the above factors evolve as a deal progresses!

21 Transaction Models Asset Sale: A form of sale/acquisition whereby a selling entity agrees to sell certain assets and intellectual property of a company to a purchaser. The corporate entity is not transferred Useful to avoid taking on certain liabilities Need to plan for transfer of permits, registrations, IP, data Stock Sale: A form of sale/acquisition whereby all or a portion of the stock in a corporation is sold to the purchaser Buyer gains the whole Legal Entity (LE) including all of its operating licenses and registrations Exactly what registrations will be included with the LE is that all that are needed? Need for LE rationalization, transfer, consolidation?

22 Diagnostic Questions Feeding Into a PMI Analysis Factor Product stewardship program Information management systems Critical products Critical geographies Materiality from diligence review Consideration

23 Recognizing transaction value: Sales Day 1 Product Sales on Day 1 Heat map action items Transfer compliance efficiently Analyze program to ID required actions & risks

24 Summary PS diligence is essential to: Allowing day 1 sales of product Realizing the objectives of the deal Focus initially on go/ no go decision for deal team Transition to PS PMI planning to ensure a plan is in place to allow sales on day 1 after closing PS in many cases will not kill a deal rather is about assigning appropriate value to the target and securing a budget & plan for PS PMI

25 Thank You Wayne Bergin, CPEA Principal Consultant ERM 295 Madison Avenue, Suite 8a New York, NY, 10017, USA (direct)