In many cases operating companies and financial institutions utilize Due Diligence studies for critical input on “Go/No Go” decisions for plant acquisitions. Once the decision is made to purchase the plant, the Due Diligence study is often put on the shelf. The company purchasing the new asset then faces significant challenges integrating the asset into the enterprise culture, implementing enterprise procedures and standards, capturing and implementing best practices and evaluating the quality of the team at the new plant.
A well executed Due Diligence study can play an important role in the rapid integration of a new acquisition into the existing enterprise from an expectations and culture standpoint. This process using the Due Diligence study as a road map can be viewed as a type of “Front End Loading” for plant acquisitions. An experienced Due Diligence team can quickly identify a number of issues that the new owner will have to address early in the integration process. These issues can be cultural differences, reliability issues, capital needs, environmental vulnerabilities and resources needed to have the plant perform as defined by business expectations. This process can expedite the plant integration by several months given a Due Diligence team composed of highly qualified professionals. The team can lay out an integrated plan for success.
Becht Engineering has significant experience in performing due diligence studies for assets in the refining, petrochemical and chemical industries. Our teams utilize proven protocols and the majority of our personnel come from highly respected operating companies. These personnel have experience in the integration of assets into existing cultures based on careers with operating companies prior to working for Becht Engineering. These teams can quickly identify and prioritize issues that could slow down the process of integration. Our teams will generate 100 day, one-year and two-year plans for integration and improvement for the plant. These plans delineate a road map for integration and are prioritized to address the most critical issues early on.
Additionally, Becht Engineering has an evaluative management protocol matrix - employed where asked - to objectively evaluate the staff at a target acquisition. This process allows evaluation of a number of management attributes deemed critical success factors in the integration process. These attributes include technical competence, management acumen, champion of change and leadership. This process can also provide input on strengths and weaknesses in the new organization that will have to be addressed during the integration process.
It can also identify areas where the acquiring company will have to inject personnel to have an efficient transition and personnel who may not be able to assimilate into the new culture. This factor can be especially important when the acquiring company is a financial institution. Why? Because a financial institution is unlikely to have the incremental plant operating resources on staff and would have to seek replacement personnel from the outside. This can result in a significant delay in the integration process and competing cultures as new personnel are melded into the Leadership Team.
Five Case Histories illustrating this process are described below:
A Becht expert performed the Due Diligence effort on a small chemical processing business. The plant had a reasonable custom tolling operation however the condition of the plant was poor and there was virtually no mechanical integrity program. The plant also had experienced two recent incidents that resulted in fatalities. The Due Diligence effort concluded that over $100MM would need to be invested in the plant to bring it up to reasonable physical condition. This represented an additional expenditure of about 40% of the anticipated purchase price. The plant also needed to upgrade a significant portion of the Leadership Team to change the culture and implement the identified improvements. Since the acquiring company purchasing the operation was primarily a financial entity, Becht Engineering concluded it would be difficult to make the acquisition successful since they would have to staff the site from the outside and there would be significant reliability and safety issues during a lengthy transition. The deal was correctly terminated - avoiding an overly risky acquisition.
A chemical manufacturer was executing a major capital project requiring licensing and integration of a number of chemical processes to make the final product. An option existed to acquire an asset in the vicinity of the project to make one of the feed stocks vs. grass roots construction. Becht Engineering performed an evaluation of the existing operating assets and concluded the facility was in good condition and strong management systems were in place. This gave the company executing the major capital project the option to reduce project scope by acquiring the existing asset. The Due Diligence study also provided a road map for integration.
A major U.S. refinery was scheduled to shut down - resulting in the potential loss of significant finished product output and eliminating approximately 1000 jobs. Becht Engineering was engaged by the prospective buyer to execute a Due Diligence study covering maintenance, reliability, machinery, electrical, control systems and instrumentation. This low cost effort produced a gap analysis and pathway for improvement for the new owner prior to the acquisition. Since the study showed the plant was in reasonable condition and the gaps were manageable, the deal moved forward keeping the refinery operating and preserving significant employment. Again, the Due Diligence study was used as a Front End Loading document to quickly prioritize needed improvements.
A Becht Engineering employee led the mechanical integrity Due Diligence effort at a highly hazardous chemical facility. The plant, if purchased, would have represented over 90% of the company’s off site risk. The plant was in poor condition, had a poor reliability culture, had experienced a recent fatality due to chemical exposure and had limited inspection and reliability data. Although recommended to not purchase the plant, the acquisition moved forward for business reasons.
A transition plan was prepared allowing for over $120MM in expenditures, a revamp of the Leadership Team and injection of 15 key personnel from the acquiring operating company. The Front End Loading plans contained in the Due Diligence study allowed a more rapid transition to a safer operation with a culture similar to the acquiring company.
Becht Engineering recently performed a Due Diligence study for acquisition of a Midwest refinery. The study identified a number of critical mechanical integrity program gaps that could potentially impact the safety and operability of the facility. The study will allow the plant and acquiring company to quickly develop a plan to address issues uncovered by the Becht Engineering experts. In many cases the plant was unaware of these issues.
Becht Engineering can help you evaluate assets you may be considering for acquisition. Contact our experts to discuss how we might support your effort.
Contact Becht Due Diligence
or Call Rick Hoffman at (281) 427-3900
Rick Hoffman joined Becht Engineering in June, 2009 as a Senior Engineering Advisor. He has more than 39 years experience in engineering, reliability management and maintenance in the refining, petrochemical and synthetic fuels industries.Prior to joining Becht Engineering he was the Director, Specialty Engineering for LyondellBasell Industries. In this role he had worldwide responsibility for corporate technical support, mechanical engineering and maintenance for more than 40 chemical plants and two refineries. He was also responsible for capital project support, setting the strategic direction for Lyondell maintenance
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