Legal aspects of buying and selling an environmental consultancy business

Due diligence is important for any significant M&A transaction but buyers and sellers of environmental consultancy businesses should also pay particularly close attention to the body of historical consultancy work built up by the target business. Environmental impact assessments, surveys, waste management strategies, and other reports are important for every business in the sector. By their nature there is a level of judgement and subjectivity, shaped by the individual or team responsible for applying the relevant data to existing regulations and statutory frameworks applicable at the time. The judgements based on previous advice, and the legality of such work, could come into question long into the future. Sellers should be transparent in relation to past projects and provide details of claims and disclose any relevant insurance coverage. Demonstrating robust compliance procedures and risk management will always enhance a seller’s position. For buyers, it is important to consider whether potential liability may justify an insistence on appropriate warranties and indemnities.

The value of consultancy businesses is closely tied to the people who work there. In the environmental consultancy sector, the workforce is often a mix of PAYE employees, self-employed experts deployed on an ad hoc, project specific basis, as well as subcontractors and technical consultants.

If acquiring business and assets rather than company shares, buyers should check how TUPE obligations will affect their plans post-transition and ensure that any retention incentives they wish to offer key staff are TUPE compliant and do not represent any unlawful variation of employment. Even if buyers plan a share sale, they should check to see if tendering for new contracts has involved the target company in earlier TUPE transfers.

Additionally, sellers should provide details of consultancy/subcontractor agreements so the buyer can be satisfied, for example, that individuals are correctly classified for tax purposes. The impact of back dated PAYE and NI liability can be significant, and most larger consultancies have already moved regular consultants into employed roles, whether full or part-time.

Related to the issue of staffing is the question of departing staff and non-compete clauses. How is sensitive internal and client data protected from disclosure by staff who leave before, and after, the deal closes? Buyers should enquire into contracts and whether non-compete clauses and other restrictions are robust and enforceable.

Users of environmental and sustainability consultancies expect high levels of professional standards and, crucially, an ethical approach to work carried out on their behalf. Accreditations, high-level qualifications, and recognised quality marks all go a long way to providing this reassurance and add value to the target business. Buyers will require evidence that individual consultants and specialist working groups within the business meet these standards and have the accreditations to prove it.

Membership of bodies, such as the Institute of Environmental and Sustainability Professionals (ISEP) and other accreditations, are key to building client trust in the consultancy business and enhancing its reputation. Because this is a key factor in valuing the business, buyers must confirm that the target business is signed up to relevant bodies and that membership and accreditation will transfer on completion.

IP and the ownership of reports, data, and analysis produced by E&S consultancy businesses are all key markers when it comes to valuing the business. Assets like these contribute to the credibility of the brand and engender trust among customers and future investors. But, they will only do so if legally protected. Buyers must, therefore, scrutinise client consultancy contracts to ensure that, for example, the use of data generated during the period of consultancy is restricted appropriately.

Additionally, sellers should provide evidence of any patents, trademarks, and protected trade secrets. It is important to bear in mind that environmental consultancies make extensive use of outside contractors and freelance technical experts when preparing risk assessments and other work. The buyer should be alert to the possibility that certain processes or methodologies may not be the property of the target company if they resulted from collaboration with third parties. It is essential, therefore, to check contracts and other arrangements to establish how this risk is mitigated.

The trend in M&As in the environmental consultancy space is for larger, sometimes multinational, consultancy groups to acquire niche businesses as bolt-on entities. These smaller target businesses are often long established and have their own distinct working practices and culture. This sometimes presents an overarching challenge that, culturally, the two businesses may not immediately fit seamlessly together. It is important for buyers to weigh up a range of factors from the outset. For example:

• How will the working practices, values, and key personalities in the target business affect the transition?
• Will existing clients remain if leading figures in the sold business leave?
• How will ongoing relationships between the business being sold and its long standing client base be managed so that lucrative relationships are preserved?
• Will technical teams be able to work well together?

These are crucial considerations because the E&S consultancy sector is highly dependent on the individuals who create the reports, impact assessments, and surveys that are at the core of the business. Aside from some of the particular legal challenges discussed already, the acquisition of smaller, established businesses often raises this more general cultural challenge post-completion.

With DMH Stallard, you have a team that is highly trained and familiar with the commercial sensitivities surrounding large scale M&As in the environmental consultancy sector. Many of our solicitors spend lengthy periods working in-house with clients to gain essential insights into the way businesses operate day-to-day. This means our advice is realistic and pragmatic and helps us understand the issues you face and ensure you meet your commercial objectives.

We have outlined just a selection of the legal and regulatory issues that can arise when buying or selling an environmental consultancy. We advise on these, and a wide range of related matters, including regulatory compliance, dealing with previous enforcement issues, contractual obligations, warranties, indemnities, and insurance coverage for historical work.

Our team of expert Sales, Acquisitions and Mergers lawyers is backed up by others working in areas such as Employment, Environmental and Planning Law.  We leverage this expertise from around the firm to add real value to our advice on M&A matters.

For an initial conversation please get in touch.