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A culture of safety is key to an acquisition

By / September 21, 2018

I once did a site walk-through with a potential acquirer—actually an entire team from the acquirer—that wanted to look over the grounds of my client, a building material wholesaler and dealer, before making an offer for the company. When you get to this stage in the acquisition process, where there’s a site visit taking place, it’s fairly exciting. The site visit usually indicates strong buyer interest, and the increased likelihood that a letter of intent may follow soon after. After all, no one incurs the expense of flying a whole team across the country for a site visit without serious intentions.

This particular location had working bays that contained loud saws that were part of a value-added operation, and you could hear the saws screaming in the background from everywhere on site. The prospective acquirer’s team members were all adorned with ear protection, hard hats, and safety glasses. But as we walked into the work area, it was clear that none of the workers were wearing any protection. Not for their eyes, ears, or heads.

I cringed. We’d warned the seller to get the work site spiffed up for a visit. And they had, but they mainly focused on cleaning up refuge and dunnage piles. It was obvious, and a little too late, for me to realize that this place did not have a culture of safety… and the potential acquirer noticed it right away.

To make matters worse, a forklift drove between us and the building we were walking toward, with a worker hanging off the back and, if that wasn’t enough, one flat tire. It flopped along sadly as I tried to keep my head from exploding.

One of the fellows from the acquirer’s team looked at me as he heard the screaming saws, which were booming at 120+ decibels. (Normal hearing is 60 decibels, and the threshold to avoid hearing loss is 8 hours at >85DB average.)

“No ear protection?” he shouted, gesturing to the workers. I signaled over the noise that this was something we could correct under new ownership.

He shouted over the noise again: “If we buy this company, we will immediately do a baseline hearing test to establish the damage baseline for all the workers.”

What was he afraid of? That could be summed up in one simple word: Lawsuits.

Under new ownership, it would be entirely possible for the workers to sue the new owners, who largely assume these liabilities. The workers could claim that not enough was done to prevent their hearing loss. Or eye injuries. Or head injuries. The fact that forklifts were roaring around with flat tires and workers catching rides didn’t exactly give the potential acquirers confidence that they were buying a safety-driven/safety-first operation. In addition to the workers’ well-being, this work site was one OSHA inspection away from a citation and fines…another potential liability for the new owner.

In the end, they elected not to bid on the company for acquisition. There were additional reasons they decided not to make the acquisition, but I can assure you that safety issue was one of them. It may not have been the first reason, but it certainly was a contributing factor.

If you are taking your company to market, one area that should clearly be addressed is your safety programs. Is everyone equipped with the right safety gear? Are your sites OSHA compliant? Would you pass an OSHA pop inspection with flying colors? Are you doing all you can to reduce the likelihood of future lawsuits over preventable health problems now?

Moreover, can you prove that you have a culture of safety, with a documented record of safety meetings, and even a safety officer (maybe not full-time, but a designee who knows the rules). These are items that a potential acquirer will look for, not only out of human concern for workers, but to limit their liability should an injury occur after they’ve taken ownership, or should claims of damaged health arise in the months and years after the new owner has assumed control.

Your safety procedures should be spelled out in your offering document, which is called an Informational Memorandum, so it’s clear what documented steps you’ve taken to limit your own liability and to limit the potential liability of the new owner.

John D. Wagner

John Wagner is a managing director at 1st West Mergers and Acquisitions, which offers a specialty practice in the LBM sector. To learn more, contact John at: [email protected], or visit www.1stwestma.com.