The chemical and related industries present a unique set of technical and operational issues that the team members at The Valence Group are highly qualified to advise on in the context of an M&A assignment. Such issues include:
Our experience recognizes the importance of identifying, valuing and equitably apportioning known and unknown environmental liabilities in the sale [+] and purchase contract. Our team members have been involved in many negotiations involving these types of liabilities and can assist clients and their counterparties in reaching an amicable resolution. [-]
We are very often involved in situations in which businesses, including plant and equipment, need to be physically carved out from the parent company [+] seller, necessitating the negotiation of various ongoing services and transition service agreements. These situations also involve financial carve-outs which require related expertise in the area of accounting, legal and compliance to ensure that clients are adequately informed and protected. [-]
Ongoing Supply Agreements
Carve-outs very often involve the continued provision of key raw materials to ensure (a) that the selling entity is not disadvantaged through the sudden [+] loss of sales volume in its core business and (b) that the buying entity has sufficient certainty regarding input materials to run the business at least for a transitionary period of time while it considers other options. [-]
Similar to the supply issue discussed above, sellers typically require buyers to commit to purchase a pre-agreed amount of input materials and/or services to avoid excess capacity and/or the inability to adequately absorb stranded corporate overhead.
Site Operating Agreements
In many instances where a business is sold, whether as a stand-alone entity or requiring a carve-out, the seller may have to create a whole new framework [+] of operating activities for the supply of basic site services such as wastewater treatment, steam heat, power, security, etc., and decide whether to continue to operate the site and supply these services post sale, create an Infraserv-type model, or sell to a third party. A buyer will need a clear understanding of such arrangements and their respective financial, legal and regulatory (if relevant) implications. [-]
Many sub-sectors of the chemical industry involve oligopolies and advisers have to be cognizant of the competitive landscape and the potential for [+] governmental actions which might preclude, or seriously weaken the economics of, a particular transaction. Other constraints can also include matters relating to unions, product registrations, FDA approvals, pension liabilities, superfund sites, etc. [-]
Patents, know-how and technology licenses are often important components of any transaction and must be adequately valued and accounted for.Similarly, intangible assets such as goodwill can also have a substantial impact on an acquirer’s earnings if not properly identified and accounted for up-front.
While not unique to the chemical industry, the oligopolistic nature of many sub-sectors and the need to protect intellectual property make the proper evaluation and negotiation of non-compete clauses a critical component of any successful chemical transaction.