In these unprecedented days, companies may be looking to realign market position through disposition of assets or by changing strategic investments. Frankly, financially strained companies may be giving a lot of thought to increasing cash flow. One way to increase cash flow is through the sale of strategic assets. And every seller wants to maximize the cash influx as part of the sale, that is, the sale price, in addition to a quick path to closing.
One of the ways to increase sale price and assure a quick path to closing in an asset sale is to make sure certain environmental issues are presented in the data room in such a way as to give prospective buyers and financiers comfort.
- What is an environmentally challenged asset?
For purposes of this post, an “environmentally challenged asset” is a business or facility that has a less than pristine environmental past. This can include, but is not limited to (i) current operations that have had a run in with environmental law (for example, notices of violations for permits, recent environmental audit that indicated compliance issues, lack of recent environmental audits); (ii) facilities where, even though current operations are “clean,” there is or could have been historic operations at the property(s)) at issue that raise environmental concerns; or (iii) off-site operations or issues that raise environmental concerns.
- Do you have an environmentally challenged asset as part of the proposed sale?
As seller, discovering this issue via buyer diligence is a recipe for delayed closing, as well as buyer putting seller behind the eight ball on issues like cost to cure and price reductions. Therefore, sellers need to know in what respect they have an environmentally challenged asset going into the sale so they can proactively address this issue in the data room and draft the purchase agreement accordingly, as well as prepare ahead of time for seller-preferred method to cure as part of the sale. As seller, you want to control the narrative regarding these issues and proactively address them to maximize sale price and minimize delays in closing.
- What are proactive sellers doing now?
Proactive sellers are taking a look at each of the properties associated with potentially-for-sale assets and preparing an analysis now of what environmental concerns are at those assets and whether those assets are potentially “environmental challenged assets,” and they are working closely with counsel to develop the necessary documents and evidence to put their company in the best position to maximize the sale price and minimize the time to closing with regard to these assets.