A survey recently conducted by Deloitte has determined that every 7 in 10 leaders on mergers and acquisitions have abandoned possible acquisitions over environmental, social and governance (“ESG”) concerns, with many of them revealing that they would willingly pay more for targets with strong ESG credits.
This comes as sustainability considerations become more important in dealmaking processes for mergers and acquisitions (M&A’s).
For their analysis, the company surveyed 500 leaders from private-equity companies with roughly $1 billion in assets under management and corporations with at the minimum $500 million in revenue across Europe, North America, Middle East and Asia Pacific regions. The company determined that ESG factors were becoming integrated into the mergers and acquisitions process, with an increasing impact on due diligence, target considerations, and final valuation and decision-making. This comes as companies improve their understanding on ESG issues and sustainability-related data becomes more available.
An estimated 99% of respondents revealed that their organizations measured possible impacts of M&A transactions on their ESG profiles. This is quite an increase from the 92% recorded in an earlier survey. More than 55% of the respondents also admitted to measuring these impacts with precise metrics, representing an increase from the 39% recorded in the 2022 survey.
Likewise, more than 90% of the leaders admitted to having high levels of confidence in accurately assessing the ESG profiles of possible acquisition targets. This is in comparison to under 75% recorded in the previous survey.
Tanay Shah, Deloitte M&A ESG leader, stated that advancements in the tactics and strategies used to enhance ESG footprints had allowed considerable progress in how ESG was considered as standard for both private-equity firms and corporations. The survey also determined that ESG issues were having a growing impact on deal-making decisions, with more than 70% of respondents admitting that they had decided not to proceed with some acquisitions because of concerns on their target’s ESG profiles.
The survey’s findings were reflected by parties on the sell-side of these deals, with more than 65% of them reporting that they had been forced to halt divesture for concerns related to ESG. This is in comparison to the 33% recorded in the 2022 survey. Additionally, the survey observed a growing influence of ESG factors on merger and acquisition valuation, with more than 80% of leaders revealing that they would pay a premium of about 3% for assets with higher ESG profiles.
Over 65% of them also admitted that they would seek discounts for targets with negative ESG profiles, which is quite an increase from the 27% recorded in the previous survey.
This survey shows that entities that follow ESG principles, such as Reflex Advanced Materials Corp. (CSE: RFLX) (OTCQB: RFLXF), could benefit in more ways than they anticipated, such as attracting investment funding from climate-conscious groups.
NOTE TO INVESTORS: The latest news and updates relating to Reflex Advanced Materials Corp. (CSE: RFLX) (OTCQB: RFLXF) are available in the company’s newsroom at https://ibn.fm/RFLXF
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