Risk and Safety Blog

Should M&A Due Diligence Consider Safety?

Mergers and Acquisitions (M&A) are a part of today’s corporate growth strategy. As a part of M&A due diligence various critical business issues are evaluated. But what about safety performance of the company you are looking to acquire or merge with?

You will say that most M&A in oil and gas/chemical processing industries are asset-driven. You look at what the pots and pans can do for you in the future and base your M&A decision.

Remember as a part of M&A you are also acquiring the liabilities. I’m sure you are aware of aftermath of the Bhopal tragedy  on Union Carbide. Union Carbide was acquired by Dow Chemicals and so Dow inherited the liabilities but may have been saved by the Indian judiciary system.

Past liabilities may be easier to identify; however, you may incur significant costs from a safety incident in the future that may affect your sustainability and profitability. For example, the BP Texas city refinery, site of fatal explosion in 2005, was owned by Amoco till the merger in 1998. 

It is therefore only prudent to evaluate risk exposure prior to M&A, particularly if,

1. Your organization has never been involved in chemical processing / oil and gas operations and you are looking to acquire a chemical processing operation
2. You are looking to acquire pots and pans that utilize manufacturing processes and technologies significantly different than your current operations

In future posts, I will discuss what to look for as a part of safety due diligence prior to M&A.