Post-merger Integration Challenges in the Agrichem SectorJun 12th, 2016 | By Michael Bittner | Category: Featured Articles
Consolidation in the agricultural chemicals sector presents challenges and opportunities for EHS and sustainability leaders.
The seeds for change in the agricultural chemicals sector are being sown. What does this mean for environmental, health, and safety (EHS) leaders?
Restructuring Among Competitors
Economic forces, including declining crop prices, falling farm incomes, fluctuating currency values, and faltering economies in key markets, have led to falling sales and profits. This has triggered pressure from activist investors and companies’ senior leaders to increase their companies’ top and bottom lines through aggressive restructuring. Companies that control the majority of the world’s seed and crop protection sales — BASF, Bayer, Dow, DuPont, Monsanto, and Syngenta — have already been swept up in the wave of restructuring. Mega-deals like Dow–DuPont, ChemChina–Syngenta and possibly Bayer–Monsanto will likely have two important consequences: additional consolidation within the sector as competitors scramble to keep up; and possible divestitures as the combining companies shed non-core assets to capture value and improve market focus.
Roadmap for EHS Success in the Agrichem Sector
Once a deal is announced, EHS leaders need to engage proactively. The following are five key areas for action.
- Strategy and planning: Experienced EHS leaders know that EHS strategies and programs will need to be adjusted to meet the changing business models at transformed companies. For companies undergoing limited acquisitions, minor tweaks in EHS strategy may suffice; for spin-offs, new companies, and mega-mergers, a strategy overhaul will likely be required. Subsequent revision of the EHS organization, policies, programs, and support functions may also be required to meet companies’ changing expectations and available resources.
- Product stewardship: Although product stewardship is not typically considered during due diligence, gaps in product regulatory compliance could limit operational flexibility, hinder Day 1 operations, or prevent entry to new markets. In some cases, product non-compliance could also result in large enforcement penalties and trade restrictions on key products in critical geographies. To overcome these potential barriers, EHS leaders should carefully assess the product stewardship program and product registrations at acquired companies. Verify that key products and ingredients have been registered or approved for use in all geographies where the companies products will be sold or be prepared to face the consequences.
- Sustainability, brand, and reputation: Most companies in the agricultural chemicals sector have strong sustainability programs with clearly articulated leadership positions and commitments. Although merger partners will likely find broad areas of agreement, the commitment, resources, and overall level of sustainability attainment could vary significantly from company to company. Overcoming the cultural and business differences associated with sustainability can be a major undertaking that should not be underestimated. Beyond the fence line, companies in the sector will continue to struggle with consumer concerns regarding the fate and transport of crop chemicals in the environment and potential human health effects and social concerns associated with genetically modified organisms.
- Information solutions: When it comes to integrating information solutions (IS), EHS is often relegated to the low risk/low priority list, resulting in reduced budgets, delayed implementations, and an overall lack of corporate interest in systems optimization and support. This situation is further complicated by reports that some of the leading players in the agrichemical sector do not have robust IS systems for EHS. Isolated, homegrown solutions are more the rule than the exception, creating enormous challenges for buyers and sellers. The process of migrating, merging, and combining EHS data and systems often exposes the weaknesses inherent in the current platforms, driving the need for new and better IS platforms. Smart EHS leaders anticipate the IS needs of the transformed organization and build a targeted business case for systems upgrades and outside support well before deal closing, when these costs can still be included in the company’s integration budget.
- Contaminated sites: Agricultural chemical companies face a growing set of compliance challenges and liabilities associated with their extensive contaminated site portfolios. Increasingly stringent regulatory requirements in South America and Asia, for example, are expected to significantly increase the size of remediation liabilities and ongoing compliance costs in the coming decades. Even when focusing on current liabilities, merger parties often face challenges in the way that the two companies estimate, report, and accrue their environmental liabilities and reserves. These differences must be reconciled as soon as possible in the merger process, and sufficient financial reserves must be established to maintain compliance with stringent laws and international accounting standards.
From the time a deal is announced through Day 1,000 after closing, the scope, scale, and pace of strategic and tactical EHS issues to be managed can appear overwhelming. EHS leaders who fail to engage proactively in post-merger integration planning will likely find that a management consultant with no technical expertise in EHS has designed the company’s new EHS organization and strategy, and possibly even compiled the department’s operating budget. These plans prepared by others are seldom sufficient to manage the company’s risk and compliance obligations, much less meet the company’s public commitments. To avoid this trap and succeed in the chaotic environment of company transformations, EHS leaders must engage early with deal teams and senior management, develop effective post-merger integration plans, bring in technical advisors with a strong background in EHS and post-merger integration, and obtain the resources required — both people and money — to implement successful post-merger integration strategies.
About the Authors
Michael Bittner, CPEA, is the Director of post-merger integration (PMI) services at Ramboll Environ, a leading global environmental and health sciences consulting firm. Michael leads a team of consultants that provides clients and legal counsel with the strategic advice, technical assistance, and temporary staffing needed to overcome the EHS challenges associated with mergers, acquisitions, divestitures, and spin-offs. He has published several articles on the challenges of post-merger integration, is a former member of the Auditing Roundtable’s board of directors, and also serves as editor of the EHS Journal, an on-line magazine for EHS professionals.
Kristine MacPhee is ERM’s Post-merger Integration Program Director for North America. She has extensive experience in sustainability, organizational design, and safety culture improvement, especially in the mining sector. She is based in Toronto, Canada.
Ashley Armstrong is a sustainability consultant at ERM who specializes in corporate sustainability reporting. She is based in Boston, U.S.A.
Photograph: Agriculture 5 by Dreyer, Hasbergen, Niedersachsen, Germany.
Post-merger Integration Articles in the EHS Journal
- After the Deluge: Designing EHS Organizations for Post-Merger Companies by Scott Nadler and Michael Bittner
- Mergers, Acquisitions, and EHS by Michael Bittner
- EHS Leadership: I’m being acquired…now what? by John D’Agostino and Donna Wiley
- EHS Post-merger Integration for Spin-offs by Michael Bittner and Walt Shill