ROBERT L. SHERRILL

ROBERT L. ATC

Strategic Due Diligence Enhancing Decision-Making in Mergers &

Acquisitions

Robert L. Sherrill, Sage ATC

NOVEMBER 28 - 29, 2017 | HOUSTON, TEXAS

Strategic Due Diligence Enhancing Decision-Making in Mergers &

Acquisitions OGENV November, 2017

Presenter: Robert L. Sherrill

They seemed to be getting closer

to a deal!

https://stock.adobe.com/stock-photo/due-diligence-wordcloud-concept/71324166

Representations and

Warranties

Levels of Due Diligence

What are the “Levels” of Due Diligence?

1. Phase I Environmental Site Assessment

2. Phase II Environmental Site Assessment

3. STRATEGIC ASSESSMENT DUE DILIGENCE

Phase I ESA

Phase II ESA

Strategic Due Diligence

Anatomy of a M&A

The Letter of Intent

Purchase Sale

Agreement (PSA) Share Purchase Agreement (SPA)

Asset Purchase Agreement (APA)

Strategic Due Diligence

July 30, 2002

HR 3763, Pub L No. 107-204, 116 Statute 745

Sarbanes-Oxley Act of 2002

SOX ACT

SOX

Security Exchange Commission Environmental

Reporting

• 1971 – SEC Release No. 5170

• 1975 – SEC Regulation S-K

• 1995 – SEC Staff Accounting Bulletin No. 92

• 1999 – SEC Interpretive Release No. 16,223

• 2002 – Sarbanes-Oxley Act

• 2008 – Federal Accounting Standard Bulletin #5

• 2013 – FASB 5 replaced by Accounting Standard

Codification Rule No. 450

Strategic Due Diligence

What’s A Liability?

Strategic Due Diligence

What’s A Liability?

Liability (in a nut shell)….is a function of a condition’s monetary impact (Materiality)

and the likelihood it has occured (Uncertainty) or can occur (Probability).

Strategic Due Diligence

Recognition

Identification of contingent Liabilities

Strategic Due Diligence

Uncertainty

Probability that a future event (or nonevent) will confirm that a material liability has been incurred

Strategic Due Diligence

Materiality

$?$?$?$?$?$?$?$? To be Material, EPA/State Laws say it has to exceed some standard. Under SOX, ASC 450 Law says it just has to exist (or could)

Strategic Due Diligence

Probability

1. Existing condition or set of circumstances which involve uncertainty as to a possible loss, and

2. Future event or nonevent will ultimately resolve the uncertainty

Liability is a function of a condition’s monetary impact (Materiality) and the likelihood it has occurred (Uncertainty) or can occur (Probability).

Strategic Due Diligence Process

Results and Work

Product to be

Expected Depending on Asset

Types, Sizes, Locations,

and the Quality of the

Seller’s Records, Resulting Work Product will vary.

Anatomy of the Strategic Due Diligence Process

Buyer Strategic Due Diligence

I. Pre-M&A Stuff Execute LOI

II. M&A Stuff

III. Negotiations Execute the PSA

IV. Post-M&A Stuff

Strategic Due Diligence Process – Big Picture Sherrill, 2016

Anatomy of the Strategic Due Diligence Process

Seller Strategic Due Diligence

I. Pre-Sale Announcement

Anatomy of the Strategic Due Diligence Process

Seller Strategic Due Diligence

II. M&A Protections

Enhanced Decision-Making

M&A Strategic Due Diligence

CLOSING THOUGHT - A Strategic Due Diligence must be planned and executed around the conditions of the M&A and the assets. Properly performed, a Strategic Due Diligence will allow for development and evaluation of the boundary conditions of the representations and warranties and ultimately facilitate a consensus on the final price and retention issues, and ALWAYS REMEMBER……………………..

Enhanced Decision-Making

M&A Strategic Due Diligence

Robert L. Sherrill Sage ATC robert.Sherrill@sageenvironmental.com 512/470-8710