I’ve been to a lot of “deal maker” networking events lately. These are the ones with lenders, private equity folks, M&A attorneys and other people who help put deals together. When I introduce myself, many are perplexed about why I am there. “Do you do Phase I’s?” they ask. “No. I review Phase I’s to make sure they are done properly and resolve issues identified in those reports.” I reply, adding “I also make sure the business has the proper environmental permits, authorizations and registrations and that they are in compliance with those requirements.” Then, they get a look that says they didn’t consider those issues in their last deal. Oops.
Environmental Due Diligence is so much more than doing a Phase I on real property. I had a client come to me after he purchased a business. TCEQ inspected the business not long after the deal closed and found that they were operating in excess of their permitted limits. TCEQ shut down the business until they could get the proper registration. Had the client reviewed the permit conditions before closing, he would have seen the noncompliance and could have made the seller remedy it.
Don’t underestimate the environmental requirements of a deal. For example, do your deals involve food distribution businesses? Keep in mind that commercial refrigeration units are regulated by the Clean Air Act. In early 2016 Trader Joe’s agreed to pay EPA a $500,000 penalty for failing to inspect and repair leaks in its refrigeration units.
Environmental due diligence should be more than checking a box. The consequences can be devastating.