In early 2022, Eversheds Sutherland commissioned a global study of 1,200 business leaders to assess attitudes and approaches to M&A. Looking back on the events that have shaped the past year, it is clear that the uncertainty which pervaded the market resulted in what many would describe as a cautious end to the year. Notwithstanding this, there remains a sense of optimism for 2023, with many predicting that M&A activity will begin to increase as we move through the first half of the year. Whilst there are many factors driving this view, a rise in ESG regulation and increasing demand for ethical investments from stakeholders are two primary factors that cannot be ignored by business leaders as they innovate and adapt their existing practices to build more equitable and sustainable business models.
These views are supported by the results of our global study and demonstrate that ESG is high on the list of priorities of business leaders across all sectors, with 67% of leaders stating that ESG is important to their business strategy. In addition, 71% of business leaders operating in the TMT sector reported an increase in the value attributed to target companies with a particular focus on DEI strategies and new technologies achieving net zero.
For those businesses operating in the TMT sector, the rise of ESG presents both a challenge and an opportunity. Big Tech companies are recognizing that M&A can offer a fast-track solution to unlocking strategic value, while start-ups are developing disruptive technologies which seek to provide businesses with sustainable solutions to their ESG reporting and/or targets. Here in particular, M&A can offer business leaders an opportunity for growth and change by bridging critical capability gaps.
As ESG moves up the agenda in boardrooms, it is becoming increasingly fundamental to M&A activity. From heightened ESG diligence reporting, to factors such as sustainability and DEI strategy becoming key valuation drivers, ESG seems set to be a top consideration for business leaders when selecting target companies.
What do our clients think?
“ESG is only going to become bigger and more important, especially when looking at a target company and understanding its ESG compliance and culture. When you’re ascertaining whether a target will be a good fit, ESG will become a part of that – it will become a meaningful and measurable core element”
Jason Baab | Senior Vice President | OshkoshPutting the pieces into place: The next drivers of strategic M&A, Eversheds Sutherland 2022
From the quality of governance structures in a target, to social reputation and performance on net zero targets, ESG can impact the value of deals due to its direct effect on brand and reputation. As a result of this, businesses with a foothold in ESG or Green Tech are likely to become increasingly attractive targets. In the past year, Eversheds Sutherland has acted for numerous Green Tech clients including advising the shareholders of Urgentum - an award winning independent provider of transparent carbon emissions data and climate risk analytics to the finance industry - on their sale to Intercontinental Exchange Inc. (listed on the New York Stock Exchange).
Despite a cautious end to 2022 for some and the ongoing market volatility challenges, we approach the 2023 M&A market with a degree of optimism. Business leaders will be looking to implement sustainability targets and standards following on from COP27 and industries will be on the front-foot as they strive to keep up with the changing ESG regulatory landscape. In many cases, M&A will be the solution to those challenges. For the TMT sector in particular, everything is set on green for 2023.
