What Weather Factors Should M&A Advisors Track?

When you think about due diligence in an M&A deal, you picture spreadsheets, legal documents, financial reports, and things like that. What you don’t picture (at least not right away) is the weather. But you should. 

Floods, heatwaves, droughts, and wildfires used to be things you watched on TV and, occasionally, they’d happen somewhere nearby. But now, these aren’t distant climate issues anymore, they’re real-world business problems. They hit your balance sheets, shut down whole operations, send the cost of your insurance through the roof, and the worst one of all – sometimes, they destroy entire assets. 

Now that you’re all paranoid, let’s mention some good news. Most of these catastrophes could have been flagged early if you had the right data, which is why modern M&A advisors are starting to look beyond the usual due diligence checklist. 

Keep reading to find out which factors related to weather advisors need to watch before they sign the deal and pop the champagne. 

Weather and Climate Metrics That Matter in Deal Evaluation

You won’t see weather showing up on a balance sheet, but it can make or break the long-term value of an asset. 

Below, we’ll go over some factors that can directly affect everything from the condition of a property to operational downtime. 

1. Flood Risk

One of the most expensive and disruptive natural events businesses face – flooding. People usually underestimate its impact on asset value, but if a property sits in or near a floodplain, it can be harder to insure, more expensive to maintain, and sensitive to regulation that restricts use in the future. 

Facilities close to rivers, coasts, and low-lying areas are especially exposed and even a ‘100-year flood’ event isn’t as rare as it used to be. The deal shouldn’t move forward without reviewing historical flood maps and checking local flood control infrastructure. 

1. Drought Conditions

If you’re looking at an agricultural business or any operation that heavily relies on water, you need to think about drought. Water shortages can choke productivity, force temporary shutdowns, and cause legal issues over rights to the water. 

A region that once had a stable rainfall can now be showing signs of stress, which makes it critical to take a look at rainfall history, aquifer levels, and restrictions on water use. With this information, it will be easier to understand whether the asset can reliably work over the long haul.

1. Exposure to Storms

Damage from storms can be catastrophic, especially when wind speed exceeds what a facility was designed to handle. If assets are in hurricane zones, tornado corridors, or regions prone to typhoons, high wind exposure won’t just occasionally interrupt operations. In fact, it could mean recurring capital repairs and long-term issues with insurance. 

It’s important to review past storm activity, wind zone ratings, and building specs to see whether you’re acquiring a resilient operation or an accident waiting to happen. 

1. Extreme Heat

Many parts of the world are getting hotter and hotter, and that heat is expensive. Facilities that need a lot of cooling (e.g., data centers, hospitals, manufacturing plants, etc.) can be faced with energy costs that never stop going up. There’s also the issue of reduced equipment life during heatwaves and lower labor productivity. 

If a location now sees far more 95°F+ days than it did a decade ago, that’s something to consider. Check heat trends and dependence on the HVAC system to get a clearer picture of operating costs in the future. 

1. Long-Term Changes in Climate

Not all risks are immediate but even those that aren’t matter. If the asset you’re acquiring is built for a 20-year return, you need to know what the climate might look like 10 or 15 years from now. Are sea levels expected to rise nearby? Is the region drying out? Warming up? Maybe facing long-term weather instability? 

In order to include climate foresight into workflows for due diligence, companies are now using tools that pull data from a global weather data API to track and project localized trends decades into the future. 

1.  Risk of Wildfires

Wildfires can destroy assets like they’re nothing, but they also bring some things that are less obvious like poor air quality, issues with the health of the workforce, and rising insurance premiums. Even businesses that aren’t directly in fire zones can be impacted if nearby infrastructure or transportation routes are affected. 

Review historic wildfire perimeters, vegetation density, and dryness patterns to see how likely it is that there will be fire-related disruptions. 

Conclusion

If you’re an M&A advisor, you don’t have to become an amateur meteorologist. You also don’t have to have your nose pressed against the window for 12 hours a day to check the weather. But you also shouldn’t ignore climate risks because, in today’s deal landscape, it would be like buying a house without checking for leaks. 

Sooner or later, you’re going to regret it.