Guidelines for Process Safety Acquisition Evaluation and Post Merger Integration E-Book

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 284

Veröffentlichungsjahr: 2013

Beschreibung

It is crucial for process safety professionals to be aware of best practices for post merger integration at any level. A compilation of industry best practices from both technical and financial perspectives, this book provides a single reference that addresses acquisitions and merger integration issues related to process safety. Presently, there are limited references on how to handle acquisitions in several different CCPS publications and almost no coverage of the post-merger integration issue, so this reference fills a notable gap in the coverage.

Leseprobe

Contents

Cover

Half Title page

Title page

Copyright page

Online Files Accompanying This Book

Acronyms and Abbreviations

Glossary

Acknowledgments

Preface

Executive Summary

Why This Guideline?

Chapter 1 – An Overview of Process Safety

Chapter 2 – The Merger and Acquisition Process

Chapter 3 – Screening Potential Candidates

Chapter 4 – The Due Diligence Phase

Chapter 5 – Developing The Integration Plan

Chapter 6 – Implementing The Integration Plan

Chapter 7 – M&A In The Future

The Appendices

Chapter 1: An Overview of Process Safety

1.0 Courtney’S Story – Continued

1.1 Why This Guideline?

1.2 Understanding The Basics

1.3 Hazard Versus Risk – is There A Difference?

1.4 Good Injury Rate Does not Equal Good Process Safety Performance

1.5 Understand The Hazards of Chemicals Handled on Site

1.6 Don’T Forget About The Dust Explosion Hazard

1.7 Unique Considerations at Facilities That Handle Hhcs

1.8 Resources for Process Safety

Chapter 2: The Merger and Acquisition Process

2.0 Courtney’S Story – Continued

2.1 Changing World of Corporate Profiles

2.2 Overview of The M&A Process

2.3 Scalability (Big/Small; Single Site Verse Multiple Site Deals)

2.4 Key Terms and Concepts

2.5 Process Safety In The M&A Process

2.6 Financial Strategists Can Have High Impact on Process Safety Systems

Chapter 3: Screening Potential Candidates

3.0 Courtney’S Story - Continued

3.1 Using Public Domain Information for Screening

3.2 Using A Checklist to Identify Potential Process Safety Issues

Chapter 4: The Due Diligence Phase

4.0 Courtney’S Story - Continued

4.1 Introduction

4.2 The Divestment Due Diligence

4.3 The Acquisition

4.4 Did The Deal Close?

Chapter 5: Developing the Integration Plan

5.0 Courtney’S Story - Continued

5.1 Developing The Integration Plan and Process

Chapter 6: Implementing the Integration Plan

6.0 Courtney’S Story – Continued

6.1 A Generic Change Model

6.2 The Integration Path Forward

6.3 An Alternate Bottom-Up Approach to Integration

6.4 Differences Between Facilities, Business Units

6.5 Step 3 – Working Through The Implementation Itself

Chapter 7: M&A in the Future

7.0 Courtney’S Story – Continued

The Appendices

Appendix A – M&A Process Safety Checklist

M&A P.S. Checklist - Commercial Evaluation Phase

M&A P.S. Checklist – The M&A Team

M&A P.S. Checklist – Data Room Information

M&A P.S. Checklist – Planning The Site Visits

M&A P.S. – Issues to Be Investigated During The Site Visits

M&A P.S. Checklist – Process Safety Issues to Consider

M&A P.S. Checklist – Assessing Major Hazard Risks

M&A P.S. Checklist – Process Safety Management & Culture

M&A P.S. Checklist – Process Safety Staffing Issues

M&A P.S. Checklist – Hazard Identification Issues to Evaluate

M&A P.S. Checklist – Management of Change Issues to Investigate

M&A P.S. Checklist – Mechanical Integrity Issues to Investigate

M&A PS Checklist – Process Safety Issues to Examine

M&A PS Checklist – Process Safty Procedures to Examine

M&A P.S. Checklist – P.S. Audit Issues to Consider

Appendix B – An Exemplar Integration Plan & Budget

Guidance for Using The Plan and Budget Spreadsheets

An Exemplar Integration Plan

References

Index

GUIDELINES FOR PROCESS SAFETY ACQUISITION EVALUATION AND POST MERGER INTEGRATION

This book is one in a series of process safety guideline and concept books published by the Center for Chemical Process Safety (CCPS). Please go to www.wiley.com/go/ccps for a full list of titles in this series.

It is sincerely hoped that the information presented in this document will lead to an even more impressive safety record for the entire industry. However, the American Institute of Chemical Engineers, its consultants, the CCPS Technical Steering Committee and Subcommittee members, their employers, their employers’ officers and directors, and ioMosaic, Inc., and its employees do not warrant or represent, expressly or by implication, the correctness or accuracy of the content of the information presented in this document. As between (1) American Institute of Chemical Engineers, its consultants, CCPS Technical Steering Committee and Subcommittee members, their employers, their employers’ officers and directors, and ioMosaic Inc., and its employees and (2) the user of this document, the user accepts any legal liability or responsibility whatsoever for the consequences of its use or misuse.

Copyright © 2010 by American Institute of Chemical Engineers, Inc. All rights reserved.

A Joint Publication of the Center for Chemical Process Safety of the American Institute of Chemical Engineers and John Wiley & Sons, Inc.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permission.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging-in-Publication Data:

Guidelines for process safety acquisition evaluation and post merger integration,p. cm.“A Joint Publication of the Center for Chemical Process Safetyof the American Institute of Chemical Engineersand John Wiley & Sons, Inc.”—Includes index.ISBN 978-0-470-25148-5 (cloth)1. Chemical industry—Management. 2. Chemical industry—Safety regulations. I. American Institute of ChemicalEngineers. Center for Chemical Process Safety.HD9650.9.G85 2010660.068’5—dc222010005157

ONLINE FILES ACCOMPANYING THIS BOOK

This book is accompanied and complimented by two spreadsheets or tools you can load onto your computer and use to assist with building your own M&A process safety toolkit. These spreadsheets provide:

Checklists of process safety issues that should be investigated or addressed in a proposed acquisition or merger,A draft of a possible integration plan of activities a reader or user of this Guideline may have to complete as part of merging together the process programs of newly acquired facilities with their own current operations, andA draft integration budgeting tool, to help with estimating the resources and costs that an organization may have to make provisions for when integrating two process safety programs together.

To access the spreadsheets, go to:

http://www.aiche.org/downloads/CCPS/Mergers_and_Acquisitions.zip

To unzip the files for use, enter the password: CCPS_Mergers

Email [email protected] with questions.

Acronyms and Abbreviations

ACCAmerican Chemistry CouncilAIChEAmerican Institute of Chemical EngineersAPIAmerican Petroleum InstituteCAPEXCapital ExpenditureCCPSCenter for Chemical Process SafetyCFRCode of Federal RegulationsCOMAHControl of Major Accident Hazards (UK HSE RegulationCSBU.S. Chemical Safety and Hazard Investigation BoardDDDue DiligenceEPAU.S. Environmental Protection AgencyEUEuropean UnionHHC’sHighly Hazardous ChemicalsHSEHealth and Safety Executive (UK)IPOInitial Public OfferingITInformation Technology SystemsJVJoint VentureKPIKey Performance IndicatorMIMechanical IntegrityM&AMerger and AcquisitionMOCManagement of ChangeNFPANational Fire Protection AssociationNGONon-Governmental OrganizationNMRISNear Miss Reporting Information SystemOPEXOperating ExpenditureOSHAU.S. Occupational Safety and Health AdministrationP&IDPiping and Instrumentation DiagramPDFPortable Document FormatPHAProcess Hazard AnalysisPSProcess SafetyPSICProcess Safety Incidents CountPSISRProcess Safety Incident Severity RatePSTIRProcess Safety Total Incident RatePSMProcess Safety Management (U.S. OSHA Regulation)Q&AQuestion and Answer ProcessRAGAGEPRecognized and Generally Accepted Good Engineering PracticeRBPSRisk-Based Process SafetyTCPAToxic Catastrophe and Prevention ActTQThreshold Quantity

Glossary

AcquisitionIs the purchase of assets or equity interest in a company and may in either case include the transfer of the operating staff from a seller to a buyer.DecapitalizationIs the sale of the assets of a business, where the brand or operation of the facility remains with the seller.DivestmentIs the sale of assets or equity interest in a business entity and may include the transfer of the operating staff from the seller to a buyerDue Diligence (DD)Is a term used for a number of concepts describing the performance of an investigation or assessment of a business or of certain assets and may address one or all of accounting, legal, engineering, environmental, and other analyses to evaluate the assets, liabilities, and potential liabilities of a business. The term commonly applies to voluntary investigationsHazardA chemical or physical condition that has the potential for causing damage to people, property or the environment. A hazard is intrinsic to the material or to its conditions of storage or use. With respect to chemicals, “hazard” may include toxicity (acute or chronic), flammability, corrosivity or reactivity.Initial Public Offering (IPO)An initial public offering is when a parent company packages one or multiple assets into a new company whose stock will be offered for sale to the public.IntegrationFor the purpose of this Guideline, integration is the process of planning and implementing various activities to merge together the operations, systems and staff of the newly acquired assets in accordance with the desires and expectations as established by executive managementJoint Venture (JV)A joint venture (JV) is the combining of assets and/or cash into a new company that is an independent legal entity from the companies forming the JVMateriality & MaterialIn the context of an M&A is the measure of the significance or effect that the presence or absence of an item or issue may have on the transaction.MergerIs technically the combination of two business entities where typically one entity survives and the other comes to an end, but with the practical result that the assets, staffs and managements (some or all) become combined into a single, larger company.Process Safety (PS)A disciplined framework for managing the integrity of operating systems and processes handling hazardous substances by applying good design principles, engineering, and operating practices. It deals with the prevention and control of incidents that have the potential to release hazardous materials or energy. Such incidents can cause toxic effects, fire, or explosion and could ultimately result in serious injuries, property damage, lost production, and environmental impact.Process Safety CultureThe combination of group values and behaviors that determines the manner in which process safety is managed. A sound process safety culture refers to attitudes and behaviors that support the goal of safer process operations.Process SafetyManagementThe application of management systems to the identification, understanding, and control of process hazards to prevent process-related injuries and incidents; it is focused on prevention of, preparedness for, mitigation of, response to, and restoration from catastrophic releases of chemicals or energy from a process associated with a facility.Process Safety MetricA standard of measurement or indicator of process safety management efficiency or performance.RiskA measure of potential loss (for example, human injury, environmental insult, economic penalty) in terms of the magnitude of the loss and the likelihood that the loss will occur.StakeholderIndividuals or organizations that can (or believe they can) be affected by the facility’s operations, or that are involved with assisting or monitoring facility operations.SwapsAsset swaps are the trading of similar assets of similar value from one company to another, usually because of geographic and/or business synergies.Toll Processor AgreementsAre contractual agreements between a company and supplier of manufacturing services, branded products or proprietary feedstocks.Vendor Due Diligence (VDD)A VDD is typically conducted by the seller using a third party consultant. The VDD provides potential buyers with a brief history and current summary of the facility’s health, safety, environmental and process safety programs, compliance with applicable regulations and known liabilities from the Seller’s perspective.

Acknowledgments

CCPS wishes to acknowledge the many contributions of the ioMosaic members who wrote this book especially the principal author and editor Dr. Gary Kenney and authors Messrs. Henry Ozog and Mr. George Groves. The authors wish to thank the following ioMosaic personnel for their technical contributions and review: Dr. Georges Melhem, Ms. Susan Ozog and Ms. Vanessa Millette.

The American Institute of Chemical Engineers (AIChE) and the Center for Chemical Process Safety (CCPS) express their appreciation and gratitude to all members of the Process Safety M&A Subcommittee and their CCPS member companies for their generous support and technical contributions in the preparation of these Guidelines.

PROCESS SAFETY M&A SUBCOMMITTEE:

Kathy Anderson, ChairVertellus Specialties, Inc.Steve ArendtABS Consulting GroupEric FreiburgerNova ChemicalBob GenauDuPontRick GriffinChevronPhillips Chemical Co.John Herber3MJim MuoioLyondellBassellBob OrmsbyCCPSKaren PersonCCPSGlen PetersAir ProductsJatin ShahBakerRiskKenan StevickDowKaren TancrediDuPontBob PerryCCPS Staff Consultant

Before publication, all CCPS books are subjected to a thorough peer review process. CCPS gratefully acknowledges the thoughtful comments and suggestions of the peer reviewers. Their work enhanced the accuracy and clarity of these guidelines.

Peer Reviewers:John AldermanRRS/Schirmer EngineeringGraham BennettDNV ConsultingRobert FischerTOTALDavid GussNexenDave KrabacherCognisSteve MetzlerPrimatechVince MurchisonSonnenschien, LLPRich NovakCognisCathy PincusExxonMobilAdrian SepedaCCPS Emeritus

Preface

“Various studies have shown that mergers have failure rates of more than 50 percent. One recent study found 83 percent of all mergers fail to create value and half actually destroy value. This is an abysmal record. What is particularly amazing is that in polling the boards of the companies involved in those same mergers, over 80 percent of the board members thought their acquisitions had created value.”

Robert W. Holthausen, The Nomura Securities Company Professor, Wharton School of Executive Education

Courtney finally settled into her seat on the plane and closed her eyes. The past seven hours had been a mad rush.

What were they thinking about on the 26thfloor of headquarters in Houston? Another acquisition? We haven’t even gotten our heads around the acquisition of Independent Refining we bought three years ago! AND this time it’s a chemical company! Bland Petroleum has no experience with bulk chemical processing.

Courtney was in the second day of an HSE audit of one of the former Independent refineries when she received a call from Houston to get back as soon as possible. The CEO of Bland Petroleum had just announced they were entering into an agreement to purchase White Hot Chemicals. A due diligence team was being formed and Courtney was to lead that part of the review into all HSE regulations and issues. The Team was meeting tomorrow morning and Courtney needed to be in Houston in time for the kick-off meeting.

When Courtney heard the news, her first thoughts were – “White Hot Chemicals, never heard of them”. While in the lounge at the airport she was able to connect to the Internet and did a quick search on White Hot. She found they had six plants; two in Texas, one in California, one in New Jersey, one in Pennsylvania and one near Terneuzen, Netherlands. She also discovered one of the Texas plants had recently been audited by OSHA. OSHA found numerous process safety related violations and White Hot agreed to correct the various deficiencies in a 20-month period. That was eight months ago.

She felt the plane being pushed back from the gate and heard the engines start. Courtney turned her head slightly and looked out the window. It wasn’t until she had been in the cab to the airport that Courtney had the chance to wonder – why me? Despite having been in the industry for eighteen years, I’ve never been directly involved in a merger or acquisition. Yes, her previous company had been bought but at that time she was relatively junior in the organization and it all just happened around her. Besides not much seemed to have really changed other than a number of their IT systems were replaced. As her mind returned to the present situation, she started asking herself: “What are they expecting of me? What are the first steps? What kind of questions or information should I be seeking? Where do I get it from? Is there any guidance that will help me through the next several weeks or, more likely, months?” Courtney began to feel exposed, lonely and yes a bit frightened at what lay ahead. One thing she was certain of – “I’m not going to sleep well at all tonight!”

Sound familiar? Been in that situation yourself? Statistics compiled by PriceWaterhouseCoopers (PWC) on merger and acquisition activity in the chemical industry indicate you have a lot of company. Over the ten-year period of 1998 – 2008, PWC reported the following numbers and value of acquisitions just within what is designated the ‘chemical industry’:

FIGURE 1 Chart of Reported Merger and Acquisition Activity in the Global Chemical Industry compiled by PWC

Because of all this activity, the Center for Chemical Process Safety decided to develop a guideline on process safety management issues that should be considered when an organization is contemplating a possible acquisition or merger. The purpose of this Guideline is to help individuals charged with responsibility for addressing process safety related matters to answer questions, concerns and issues that arise during the acquisition of or merger with a facility or company that has process safety related operations. In other words, questions as started to course through Courtney’s mind.

This Guideline, of course, will not answer all the questions that will arise as an organization or an individual progresses through the various stages of a merger or acquisition. It is hoped though that it will assist the reader to better understand the various phases of the merger and acquisition process, the types of process safety issues that should be examined as the acquisition moves forward and finally lay a foundation for establishing an integration plan to bring what at times might be two disparate approaches to process safety to a single whole.

The Guideline has been constructed more to serve as a working tool than a textbook on the merger and acquisition process. As is particularly true in our profession in today’s business climate – Who has the spare time or inclination to sit down and read a book on process safety related issues during a merger or acquisition unless that situation is staring them in the face? So if you are like Courtney and are facing an acquisition or possible merger this Guideline is targeted at you. It is our goal by taking the time to go through it, we will have reduced your anxieties, increased your confidence, helped identify the issues you need to explore as well as when to explore them and reduced the burden on you and your company’s M&A team. And finally, we hope it will help guard against your merger or acquisition falling into that eighty percent that does not create value – at least from a process safety standpoint!

EXECUTIVE SUMMARY

WHY THIS GUIDELINE?

This Guideline is born out of the hard experiences of various members of the Center for Chemical Process Safety (CCPS). One of those hard experiences is that CCPS member companies discovered after purchasing a site or merging businesses a variety of process safety concerns or issues had to be corrected. In correcting those issues they found it added another ten to thirty percent to the initial purchase price. The adage that 90% of an iceberg is below the water line seemed to well illustrate what these companies experienced.

Why did this occur? It was a direct result of process safety not being an integral part of their M&A due diligence activities. It was not until after the deal closed and the integration process started that they were able to identify and then quantify the cost to correct these process safety issues. Only after they were able to develop hard data and present it to their management did these companies gain support to include assessing process safety to their due diligence activities. Support to develop tools and mechanisms that helped ensure process safety issues were identified and assessed early in the due diligence phase of a potential acquisition or merger. This Guideline was developed, then to:

Pass that experience along to others to help them make that same case to their management (namely that process safety issues need to identified and investigated thoroughly in the due diligence process),Provide assistance on the various types of process safety issues that should be investigated, andProvide assistance with planning the integration of multiple process safety programs into your business after the deal has closed, andHelp to use risk based experiences and expertise in the merger and acquisition process.

The Guideline with appendices is over 300 pages long. Recognizing you might not have the time to sit down and read through it all, this Executive Summary was prepared outlining many of the important points in each Chapter. Further, the Appendices contain three spreadsheets or tools you can load onto your computer and use to assist with building your own M&A process safety toolkit. The appendices provide:

Checklists of issues to be addressed in a proposed acquisition or merger,A draft integration plan of activities that you may have to complete as part of merging the newly acquired facilities with current operations, andA draft integration budgeting tool, to help with estimating the resources and costs associated with the integration process.

These spreadsheets are available on the site http://www.aiche.org/downloads/CCPS/Mergers_and_Acquisitions.zip Password: CCPS_Mergers

CHAPTER 1 – AN OVERVIEW OF PROCESS SAFETY

The first Chapter provides readers who are new to Process Safety (PS) or Major Hazard issues with some fundamentals in these areas. It also presents a few case studies of recent investigation(s) into major PS related accidents. These investigations examined changes to the organizational structures, management systems and the general overall approach taken toward process safety issues. One case study demonstrates that even where the acquisition involves two companies who have a history of operating similar if not identical plants or processes, their individual approaches to process safety may be so different, it is difficult to integrate seamlessly the two programs together.

For a definition of process safety, the current working definition as compiled by the CCPS is used:

Process Safety – is a disciplined framework for managing the integrity of operating systems and processes handling hazardous substances by applying good design principles, engineering and operating practices. It deals with the prevention and control of incidents that have the potential to release hazardous materials or energy. Such incidents can cause toxic effects, fire or explosion and could ultimately result in serious injuries, property damage, lost production and environmental impact.

The Chapter points out that the effectiveness of process safety programs must be evaluated separate from occupational or personal safety programs. Trevor Kletz notes;

“Personal safety metrics are important to track low-consequence, high-probability incidents, but are not a good indicator of process safety performance. The lost time rate is not a measure of process safety …”

You should be cautious then of using personal safety indices (e.g. lost-time-injury rates) as a determinant of the state of a candidate’s process safety program(s). Leading and lagging performance measures have been developed to track and assess the state of process safety programs. In addition to any personal safety indices, process safety related indices should be requested and used for assessing the health of a target candidate’s management of major hazard or process safety issues.

Process safety related accidents are sometimes referred to as being of low likelihood (i.e. occurring infrequently) but often having major if not catastrophic consequences. As the consequences of an accident becomes more severe, society and as a result, respective governments, find PS accidents to be unacceptable or intolerable. Control of such accidents includes effective leadership, administrative controls (e.g. management systems, training, procedures, etc.) as well as assuring the physical plant and equipment used to process or handle highly hazardous materials or processes are fit for their intended purpose. Effective process safety programs entail assuring the health of all such risk control measures.

The first step in assessing an acquisition candidate’s exposure to process safety issues, is to identify the actual type and quantities of those materials stored or processed at a particular site. Lists of ‘Highly Hazardous Chemicals’ have been developed using a variety of physical and chemical characteristics (e.g. their flammability, toxicity, reactivity, etc.). Many of these lists have been adopted into regulations which set limits, above which a site or process are required to put into place process safety or major hazard accident programs.

In addition to facilities that handle highly hazardous chemicals, many processes or operations are prone to generating flammable or explosive dusts. These include plants or facilities handling or processing even common materials such as sugar, wood, grain(s), coal and many metal dusts such as aluminum. These too should be examined for process safety issues.

There are numerous process safety resources available to an individual needing further research, support or assistance in this area. These include:

Government agencies – e.g. US-OSHA or UK-HSE

Industry associations – e.g. the Chlorine and the American Petroleum Institutes

Professional associations such as the American Institute of Chemical Engineer’s – CCPS website, the Canadian Society of Chemical Engineers and the Institute of Chemical Engineers in the UK.

Academic institutions such as the Mary K O’Connor center for Process Safety

A more exhaustive list of such agencies or groups and their websites is listed in Table 1 of Chapter 1 (page 39).

CHAPTER 2 – THE MERGER AND ACQUISITION PROCESS

Chapter 2 was written to provide a reader a basic understanding or overview of the merger and acquisition transaction process whether it involves the acquisition of assets or the purchase of company stock or the merger of two companies.

It is important to remember that an acquisition or merger always involves two parties, a seller and a buyer. A transaction typically entails an acquisition of either assets (such as facilities and process units) or equity in a target company by a buyer (equity can include stock, partnership interests and other forms), while on the other side of the table is a seller who is divesting itself of an asset or the equity in a subsidiary or affiliated company. Definitions for acquisition, divestment and a merger are provided as follows:

Acquisition – is the purchase of assets or equity interest in a company and may in either case include the transfer of the operating staff from a seller to a buyer.

Divestment – is the sale of assets or equity interest in a business entity and may include the transfer of the operating staff from the seller to a buyer.

Merger – is technically the combination of two business entities where typically one entity survives and the other comes to an end, but with the practical result that the assets, staffs and managements (some or all) become combined into a single, larger company.

A brief overview of other types of merger and acquisition activities such as the forming of joint ventures, mergers, etc. are also discussed in Chapter 2.

These guidelines use the terms “merger and acquisition” and “M&A” process as a shorthand reference to a plethora of transactional structures only lawyers can conceive. But in the end, the net result is that processing plants, individual process units, manufacturing plants, transportation facilities, and other complex facilities change hands to a new owner and/or operator. Whether via an asset or equity transaction, the process typically begins with signing confidentiality agreements followed by a series of exchanges of information from the seller to the buyer concerning the subject. If business objectives persist and negotiations progress, due diligence typically occurs prior to and during drafting of agreements to govern the exchange. This process may occur over a period of time from as short as a few months to well over a year. However, while simple in overall form, the process can be highly resource intensive as well as physically and emotionally demanding.

A critical part of the M&A process is the due diligence phase. For the purposes of this Guideline due diligence is defined as:

Due Diligence (DD) – is a term used for a number of concepts describing the performance of an investigation or assessment of a business or of certain assets and may address one or all of accounting, legal, engineering, environmental, and other analyses to evaluate the assets, liabilities, and potential liabilities of a business. The term commonly applies to voluntary investigations.

Of importance is that both the seller and the buyer should conduct a due diligence examination of the assets in question. The purpose is to identify all relevant and material issues or liabilities, their estimated value and any conditions that could influence the final decision to acquire those assets. When performing such assessments it is usual to assemble a multi-disciplinary team. The role of the DD team is to:

Raise potential issues to the M&A business team that could require heightened management attention,Provide the M&A financial team with a valuation of potential process safety costs, andProvide the M&A legal team with sale agreement language, mechanisms and concepts.

When performing a due diligence, it is vital to set a level of financial materiality that the DD team is to evaluate and for inclusion in their report. A general rule of thumb is to set that threshold at ten percent of the estimated purchase price for the group of assets being examined.

A checklist of potential process safety or major hazards issues that a DD team should consider is provided in the Appendices as well as on the accompanying files (see page xi for details on how to access these files.)

CHAPTER 3 – SCREENING POTENTIAL CANDIDATES

Whether you are called in at the earliest stages of a potential acquisition or later when a DD team is formed, a search on the Internet may provide you valuable background information on the target candidate(s). Start with the target candidate(s) company website(s). Next check websites of local, state or national regulatory websites to see if they contain any information on the particular site or company being considered. News articles from local, state or national news services or papers are also a useful source. Finally, you may want to check various Non-Governmental Organization (NGO) websites to see if they contain articles or information pertaining to the site(s) or company being considered. The nature of all this information should be noted and investigated further when you move into the later stages of the due diligence process.

From the company’s websites, see if you can obtain information on their overall policies and approach to HSE in general, and process safety, in particular. Ideally you would want to obtain details on the company’s approach to process safety or asset-mechanical integrity. Once in the company’s website, do searches for such terms to see if it provides any references or ‘hits’. Accident statistics or information on actual incidents should be searched for as well. The search should be balanced though, so see if the company has received any awards or commendations for their safety and environmental performance or practices.

A search of local, state and regulatory agency websites may turn-up information of recent enforcement actions, notices of violations, judgments or administrative agreements recently reached with the target company or site. Such matters should be brought to the attention of the M&A project lead if identified. Also search for the status of any permits the target company holds. The nature of such permits could prove material at this stage of the DD process.

Negative news articles or negative discussions of the company or site on NGO websites should be noted for future investigation. However, where it is felt the issue or issues underlying the reason for the news articles are of potential materiality to the proposed acquisition or merger, these should be brought to the attention of the M&A project lead as soon as possible.

Websites that may provide information as described above are presented in Chapter 3 (Tables 1, 2, 3 and 4) and in Table 1 of Chapter 1.

Where it is possible to obtain the location(s) of the actual sites that are to be acquired, these should be searched using Google Earth® or Microsoft Virtual Earth®. These websites provide the ability to view the site in relation to its neighbors, watercourses, railroads and adjacent facilities, i.e the surrounding general environment. Zooming-in on the site will allow you to gain insight regarding the number and general size of storage tanks, their location with respect to surrounding or neighboring facilities as well as whether there are sites of special interest nearby (e.g. schools, hospitals, other processing plants, etc.). Capturing such information will give the PS reviewer a head start on what issues they might need to examine as part of the site visits, or information they might request to be placed in the data room.

CHAPTER 4 – THE DUE DILIGENCE PHASE

The activities or steps involved with divesting a group of assets versus acquiring them are very similar. However, the order in which the activities will be carried out differs.