Q. We are in the beef slaughter business. Due to our growth, we are considering purchasing an additional facility. Can you offer any “watch outs” or advisories when I conduct a survey of this facility?
A. First of all, congratulations on your company’s growth! Performing a thorough “due diligence” can be an arduous search to ferret out potential problems before they become yours. One effective approach is the “Outside, In, In, In” technique. The “outside” is the environment beyond the facility’s walls. Thorny issues to consider include the wastewater treatment plant’s capacity and discharge limits and how compatible it is with your specific waste stream, because all waste streams are not created equal. Survey the building’s neighbors within a five-mile radius (along with the prevailing winds in the area) to determine what products they make and how compatible they are with whatever effluents (air, odor, volatile organic compounds) your facility will emit. Review traffic patterns and volumes to determine if the infrastructure is adequate to handle the volume you will generate in transporting raw materials in finished goods out.
The first “in” is the facility itself. The most important issues involve building infrastructure. Secure a complete set of construction drawings (mechanical, electrical and plumbing) or a trail to get them. Survey the walls, floors and rooftops to develop estimated costs to bring them up to your company's standards. Conduct a survey of the steel superstructure including sonic testing for web thickness (this is particularly important in humid environments because replacement costs are extremely high). The last piece of the facility due diligence is to contact the area regulatory agencies (USDA, FDA if applicable, OSHA and EPA) and request the past six months of “exception” reports detailing concerns their inspectors may have noted. A quick check will let you know whether the prior management addressed each of those issues.
The second “in” is the existing equipment. You should examine what the maximum capacities are for compressed air, steam, hot water, electricity and refrigeration and compare that to what your anticipated capacity needs will be. Determining what type of maintenance system was utilized will help you judge how well the facility was maintained. This information, coupled with purchase dates, will give you a good feel for which pieces may need to be replaced.
The final “in” is what your company wants to put into the facility. Check to make sure there is adequate room to accommodate any new processes you wish to install in the new facility.
Once you have addressed each of the outside and inside concerns, a recap of the existing conditions along with the costs to bring each area up to your company's standards should provide a very good framework for upper management to start negotiating on the final purchase price. Best of luck on this great initiative!