Case Study

Operational and environmental due diligence in industrial operations

Goals: assess operational viability, identify improvement opportunities, and mitigate environmental risks to support a strategic decision in the M&A process

More on Sustainability Consulting

Project context and objective

As part of an M&A (Mergers and Acquisitions) process, the need arose to conduct an operational and environmental due diligence assessment to evaluate the operational viability, improvement potential, and environmental risks of a potential investment. The goal was to provide strategic insights that support an informed investment decision while ensuring operational continuity and environmental sustainability.

Challenges and identified needs

The challenge was to provide a comprehensive assessment that would enable the potential buyer to understand operational synergies and evaluate the environmental risks associated with the target company. This required analyzing two critical dimensions:

1. Operational and financial area:

• Assess operational costs (fixed and variable) and the efficiency of industrial units.
• Validate OPEX and CAPEX for maintenance, including replacement CAPEX, by estimating the lifespan of key equipment.
• Analyze installed production capacity to identify potential constraints and expansion opportunities.
• Analyze operational risks within industrial units, considering the impact of potential expansions.

2. Environmental sustainability:

• Assess environmental risks related to energy, water, material consumption, and carbon emissions.
• Develop a materiality matrix, considering risks and opportunities, to prioritize the most relevant topics.
• Create an environmental value creation plan focused on reducing environmental impact, mitigating environmental risks, and establishing a socio-economic and environmental sustainability strategy.

The objective was to gain a comprehensive view of operations and environmental risks, providing insights to support informed decision-making while ensuring the investment’s sustainability and profitability.

Approach strategy and conducted analyses

The operational due diligence approach for evaluating the target company’s operations included the following analyses:

• General overview: Assessment of layouts, material flows, billing, EBITDA, and operational costs.
• Raw material cost analysis: Breakdown of costs by raw material category, pricing update model, key consumption patterns and suppliers, scrap percentage, and strategic conclusions.
• HR cost analysis: Distribution of hours worked by department, average HR costs by function, forecast needs and costs of FTEs by function and key findings.
• CAPEX and production capacity: Investment plan, calculation of maximum production capacity for planned CAPEX, bottleneck machine utilization, assumptions for maximum potential capacity, and additional CAPEX requirements for expansion.
• Maintenance and CAPEX replacement: Asset lifespan, maintenance costs, and maintenance cost percentage in relation to revenue.
• Productivity: Defining scenarios for increasing productivity and evaluating the impact.

The environmental due diligence approach followed a structured methodology, encompassing the following analyses:

• GHG emissions measurement: Evaluation of greenhouse gas emissions across scope 1, 2, and 3.
• Materiality analysis: Identification of the most relevant environmental topics for the industry, competitors, and company stakeholders.
• Regulatory compliance assessment: Verification of adherence to environmental legislation, standards, and certifications.
• Sustainability maturity matrix: assessment of the company’s environmental strategy based on seven pillars: legal compliance, standards, sustainability strategy, eco-efficiency, circular economy, people, and innovation.
• Sustainability SWOT analysis: Identification of strengths, weaknesses, opportunities, and threats in the company’s environmental context.

The potential buyer gained a comprehensive and integrated view of the target company’s operations and sustainability by conducting operational and environmental due diligence. This approach enabled the potential buyer company to make an informed and strategic decision within the M&A process.

We are committed to respecting our clients’ confidentiality. While we have altered or omitted their names, the results are genuine.