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Insight

Envi­ron­men­tal Audits Minimise & Limit Transaction Risks

by Christiane Jung Business development manager
Anyone who nowadays buys a company or property will usually carefully verify financial, tax, market and competition as well as legal risks. Envi­ron­men­tal risks such as a cont­a­m­i­nated site or other soil risks also play an important role. The value of a company or a property depends not least on possible liability risks. An Envi­ron­men­tal Due Diligence is advan­ta­geous for both buyers and sellers.

Since 1985, the number of company acquisitions and mergers has risen tenfold. At the same time, the effort of negotiations before a transaction have also risen with the financial and economic crisis. The process of investigating all facts, conditions, rules, laws, regulations, financial considerations, or any other such matters that would affect one's decision to purchase property is called due diligence audit.

Although such an audit is not legally required, anyone who acquires a company or a property from which environmental risks arise is also liable for this. Strict compliance guidelines and the more deliberate handling of money and assets do their utmost to ensure that the due diligence audit is becoming more and more important.

It is important to consider not only the actual situation but also to check whether the transaction corresponds to future laws and regulations, in particular EU Directives.
Christiane Jung, Business development manager

As an increasing number of potential buyers evaluate the legal, fiscal and financial situation, the environmental situation of the company or the property is often neglected. This is all the more serious as the value of a company or property is significantly dependent on its environmental situation and the liability risks it is exposed to. For company or property transactions, it is, therefore, important to take a close look at possible environmental risks and the resulting monetary risks within the scope of the due diligence process. At the time of the transaction foreseeable changes to the legislation are included in the evaluation. Possible environmental risks or the elimination of environmental damage can thus be directly integrated into the agreement and reflected in the purchase price.

An environmental due diligence audit is also relevant from a sales perspective. For this reason, in addition to the buyer's due diligence (Acquisition DD), the seller's due diligence instrument (Vendor DD) is recommended. This serves to document the environmental risks or damage at the time of the sale from the vendors point of view. The Vendor DD thus represents the starting point for the sales negotiations and forms the opposite of the Acquisition DD.

Transaction Services Grafic EUInternational Standards

CDM Smith prepares audits using procedures that apply across the globe while taking into account local requirements specific to a country or region. Our portfolio includes the following international standards:

  • Property Transaction Services/Mergers & Acquisitions
  • Environmental Liability Directive (2004/35/EC)
  • ASTM 1527-13: Standard Practice for Environmental Site Assessment Process: Phase I Environmental Site Assessment Process
  • ASTM 1528-14: Standard Practice for Limited Environmental Due Diligence: Transaction Screen Process
  • ASTM 1903-11: Standard Practice for Environmental Site Assessments: Phase II Environmental Site Assessment Process
  • ASTM E2107-06 (2014): Standard Practice for Environmental Regulatory Compliance Audits
  • ASTM E2365-14: Standard Guide for Environmental Compliance Performance Assessment
You can rely on CDM Smith as a competent partner through all EDD phases.

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