REGULATION & COMPLIANCE
assessment . A typical cost for a single EOGRTS test is around € 1.4 million but it can be considerably more . In addition to the one that has already been done in this case , another is in the pipeline and a third may be coming along later . To date – that is , six years into the process – Company B has run up about € 10 million of costs that were not foreseen before the acquisition was made . Every year , for five years or more , they will see the same kind of costs all over again . For the calendar year 2022 , the company had a regulatory budget for the whole year of € 2.5 million . It was spent by mid-February .
Result & lessons
Too many companies are unaware of the possible consequences of missing out regulatory due diligence when carrying out M & A . Before REACH , this did not matter very much because whatever needed to be fixed could be fixed . REACH has changed the whole basis on which companies do business , up and down the supply chain and across competitors . To add a further level of complexity , the lead registrant for any substance is not necessarily also the data owner ; in many cases , they are not and such was the case in this example . Company B had not looked at the issue of data ownership . When it bought the REACH registrations , it also bought the study reports but not necessarily the right to use the data to carry out registrations in other jurisdictions . It may have to pay again to use the dataset for another purpose . This case study may be an extreme example but it is not necessarily unusual . We still see many examples in the marketplace where companies are looking at M & A and are not looking at the detail of these kinds of issues . So , what should have happened in this case and what should happen in others yet to come ? The first thing needing to be done before the purchase of the business is to obtain a list of substances that will be acquired . Secondly , conduct a full regulatory review of each of them . This should include the following :
• Quality of the registration dossiers
• Any imminent dossier upgrade work
• Mandatory testing requirements
• SVHC & candidate SVHC listings
• Whether they are likely to come under scrutiny for chemical and / or toxicological properties There are a lot of lists of these properties . Probably the most commonly used is the so-called ‘ SIN ( Substitute It Now ) List ’ produced by the NGO ChemSec . This is actually useful as well as irritating because the process ChemSec works by is a clear red flag as to whether something is likely to be a problem in the future . You should also ask why the selling company is selling . Is this a fire sale ? Have they seen regulatory trouble ahead and decided to eliminate a potential problem while making some money out of the process as well ? Do they actually know what they are selling ? Some of the products being acquired may not be worth the costs of any additional testing , which may itself lead to further testing requirements . In a proper due diligence process , looking at the costs of regulatory compliance is essential . The cost of doing this could be paid back thousands of times over if you spot just one or two potential problems ahead . It is also advisable to get expert advice and plan for the worst . The management team running a business is unlikely to have the expertise in these areas . Therefore , go to somebody who knows what to look for and where to find it , and who can see where the ‘ bear traps ’ are going to be ahead of time . Finally , be aware of the potential impact of Brexit . Among the first questions to ask are :
• Are both EU and GB registrations included in the registration ?
• Can any UK registrations be grandfathered or put into the DUINs system for easy transfer into the EU ?
• Are they are any transferred registrations that are still applicable from the supply chain , such as an importer v . Only Representative registration ?
• Is there divergence between the EU and the UK for any substances and what are the implications of this ? •
Alan Ritchie
ASSOCIATE DIRECTOR
WSP k + 44 20 3116 6072 J alan . ritchie @ wsp . com j www . wsp . com
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