Seven out of 10 acquisitions threatened by 'hidden' risks

- Last updated on GMT

Related tags: Due diligence, Finance

Environmental issues could make some companies unsaleable

Many companies are abandoning potential takeovers because of large risks associated with health, safety, social and environmental (HSSE) issues in their target acquisitions, according to financial services group KPMG.

In a survey of 500 food, drink and other companies around Europe, it found that seven out of 10 had pulled out of, renegotiated or restructured a deal as a result of HSSE issues emerging from environmental due diligence (EDD) audits.

KPMG said that many potential buyers withdrew for fear of damage to their reputations from poorly run companies.

Head of EDD James Stacey said that some sellers of companies concealed environmental problems deliberately while others were unaware of the issues.

"Issues that break a deal or have a significant impact on price tend to come up as a surprise. I think that there have been quite a few companies bitten," he said.

Stacey added that environmental issues affect all aspects of a business, including finance, legal and regulation, and are an indicator of the quality of management. Such issues have been receiving particular attention by senior management of late.

"Environmental diligence has been on the increase since the late Eighties," said Stacey. "The reason that environmental issues are coming more to the fore is that they have financial numbers associated with them."

Stacey said that for many food and drink companies the need to register for the new Pollution Prevention and Control (PPC) regulation is a big step, whereas many firms in other industries have been registered since the early 1990s for the previous Integrated Pollution Prevention and Control (IPPC) legislation.

The KPMG survey also found no standard approach to EDD, with the risk that some important issues could be missed.

Stacey said that listed companies might soon face a legal requirement to reveal HSSE issues in their annual reports.

"I think we could see some reputational damage directed at companies trying to avoid dis- closure," said Stacey.

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