Why checking machinery history in any M&A is vital

Senior Consultant, Martin White highlights a case study involving an engineering group which acquired machinery as part of the asset purchase of a specialist component company.

Although “due diligence” is routinely carried out as part of an asset acquisition, an area often overlooked is the health and safety, environmental and information security risks that might be inadvertently passing to the purchaser with engineering assets such as machinery.

Unless focused due diligence is carried out to assess the condition of machinery these risks can be missed. In the event of an accident, it is the purchaser rather than the seller who will have criminal liability for regulatory breaches and/or for a breach of the Health and Safety at Work etc Act 1974 for having failed to take reasonably practicable steps to ensure safety by checking the history of equipment purchased. The case study below from the Health and Safety Executive highlights what can happen:

Case study: Machine tools

An engineering group acquired a small specialist component company as part of its plan to diversify its product range. The specialist company had various machines, some of which were quite old. Once these older machines caused an accident post purchase when moving parts continued to operate after its stop control button had been pressed, causing the machine operator to suffer a serious hand injury. Acting on behalf of the injured employee, The Union initiated a civil action against the company.

The new plant owners planned to rely on the fact that the equipment at fault had not been properly maintained and checked by the previous owner. However, during due diligence no servicing and repair records had been requested. None were available to show any fresh risk assessment or maintenance post purchase.

The engineering group was advised that their defence would be unlikely to succeed. In addition, they could not prove that they had carried out the appropriate work to ensure its safety, or taken steps to establish the condition of the machine during due diligence or after completing the acquisition. Therefore they had no documented evidence to show that they had taken reasonable precautions.

This insight could impact the price you pay for the assets, allow for the inclusions of warranties or indemnities, or could even result in you reconsidering the purchase entirely.

With an expert team of engineers and lawyers, Finch Consulting are well placed to provide advice to companies who may be acquiring machinery assets as part of a corporate transaction to ensure our clients understand the engineering risks.