According to the latest report released by Deloitte in June 2024, corporations and private equity funds have increasingly focused on their own ESG profile and that of their targets. The survey was carried out on a sample of 500 global M&A leaders. These correspondents are North America, Europe, the Middle East, and Asia Pacific (APAC). Following are the significant findings from the survey.
More than 50% of the organizations in the sample are more transparent and specific about the metrics used to assess their ESG performance. There is an 18 per cent increase compared to only two years ago. Interestingly, firms in some specific industries, including technology, media, telecommunications, financial services, and consumer, experience bigger improvements than those in others. This phenomenon may come from the fact that these industries are closer to the mass customers, so they are more concerned about their customers’ perceptions regarding sustainability-related activities.
The report shows that more than 80% of the acquirers will likely abandon the M&A deals if their targets have a poor ESG profile. Furthermore, almost 100% of the acquirers will likely buy the targeted firms at a discount if the acquired have poor ESG profiles. The private equity respondents even pay more attention to ESG and sustainable investing. Indeed, 72 % of private equity acquirers carefully consider the targets’ ESG profiles in more than 50% of the deals.
According to the report, the ESG program has become integral to the M&A strategy. In other words, a firm’s ESG profile is a reason for initiating an M&A deal in the first place. Indeed, approximately 70 % of the surveyed correspondents indicate that they evaluate their investments or portfolios from the perspective of ESG before seeking out an acquisition deal or divestiture. In addition, ESG significantly affects an M&A’s valuation. 83% of M&A leaders in the survey suggest that they are willing to pay a 3% premium for a target company with a strong ESG profile. On the contrary, they will look for a discount of at least 3% if the targets have a weak ESG profile.
Author: Bao Hoang, Ph.D.
