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!
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 II ESA
Strategic Due Diligence
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 [email protected] 512/470-8710