Sustainability has become a key consideration in M&A transactions. Investors are consciously re-positioning their portfolio in the context of the ongoing economic transformation driven by sustainability-related regulatory and market developments. Corporate investors are buying specific targets to close sustainability skill gaps in their organization. Buyers are learning how performing ESG due diligence is an important part of protecting against risk and identifying potential pockets of deal value. And sellers are realizing that they can generate additional value by crafting a solid, ESG-driven equity story.
Integrating ESG into transactions is therefore paramount for dealmakers. KPMG helps you integrate ESG into your deals along the entire transaction cycle.
Why integrate ESG in your transactions?
We have spoken to more than 150 investors in Europe, the Middle East and Africa1 – and the arguments are clear:
Sellers should integrate ESG into their transactions because:
Almost 70% of buyers say that they would be willing to pay a premium for a target that is in line with the buyer's ESG priorities
Buyers are increasingly looking to make targets subject to ESG due diligence before agreeing to an acquisition, highlighting the need for sellers to prepare accordingly
Many buyers struggle with ESG data availability and quality from the sell-side, presenting an opportunity for sellers to create value by preparing high-quality sell-side ESG documentation
Click on the images to enlarge them
Source: KPMG EMA ESG Due Diligence Study (2022)
(1) The study was based on answers of 151 active investors across sectors and throughout the EMEA Region (both corporate and financial investors)
(2) Past two years and future two years as of Q4 2022
Buyers should integrate ESG into their transactions because:
Buyers who systematically perform ESG due diligence are more likely to gain material findings
ESG-related findings may have significant deal implications such as being deal stoppers or resulting in the need for additional contractual protections, for example
Almost 70% of buyers are willing to pay a premium for an ESG-compliant asset, highlighting the financial value of understanding ESG aspects in a target pre-signing
Click on the images to enlarge them
Source: KPMG EMA ESG Due Diligence Study (2022)
(1) The study was based on answers of 151 active investors across sectors and throughout the EMEA Region (both corporate and financial investors)
(2) Multiple answers possible
How can KPMG support your organization?
We support buyers and sellers in integrating ESG along the entire deal cycle. We do this with an integrated team of specialists within Deal Advisory who possess extensive expertise in both ESG and M&A across various sectors. Key services along the deal cycle are shown below:
- Revise M&A strategy to consider ESG factors
- Identification of suitable targets in line with revised deal strategy
- Align M&A strategy with target’s ESG strategy and identify gaps or innovation requirements
- Understand which gaps could be closed through M&A activity
- Identify, assess and prioritize suitable targets
- M&A strategy that is aligned with your corporate ESG strategy
- Identification and analysis of material ESG issues
- Assessment of potential impact on deal value
- Gain insights from an in-depth ESG DD to mitigate potential sustainability-related risks and capture hidden opportunities
- Reach sustainability-driven EBITDA through ESG-driven EBITDA adjustments
- Transparent analysis of material ESG risks and upsides in a deal
- Integration of ESG-related findings into negotiations (SPA) and bid price
- Identify key ESG findings from the due diligence to consider in the final decision (potential make or break criteria) and reflect in deal value (e.g., risks as cost driver)
- Contractual protection from ESG risks based on ESG DD findings
- Integration of the target’s ESG capabilities into the buyer’s relevant functions and processes
- Include ESG factors in the definition of the integration principles depending on the acquisition rationale
- Consider ESG factors in integration planning
- Coherent integration planning in line with ESG DD findings
- Assessment of ESG topics in divested assets to anticipate bidders’ concerns or promote specific ESG capabilities
- Preparing a sell-side VA or DD report, or an ESG-driven commercial equity story in the IM which proactively addresses potential ESG-related concerns or highlights areas of opportunity
- Protect or increase deal-value through robust ESG factors
Explore our 2022 EMA ESG Due Diligence Study
To find out what ESG in transactions means for dealmakers across Europe, the Middle East and Africa, KPMG surveyed more than 150 active dealmakers across the region. These dealmakers were asked what works, what doesn’t work and what challenges they face in integrating ESG into transactions.
Read this report for further insights on how to incorporate ESG into your organization’s M&A processes.
Contact our ESG experts
ESG has emerged as a key indicator of successful transactions. Identifying risks and opportunities in advance ensures that both buyers and sellers have more confidence in the valuation and can make more informed decisions.
Take action now by partnering with KPMG to find answers to these critical questions either on the buy-side or sell-side and seamlessly integrate ESG considerations into your M&A activities. Together, we can unlock the full potential of your deal, drive long-term value, ensure alignment with sustainability goals and build a resilient and responsible business for the future. Embrace the transformative power of ESG and let it shape the path to your organization's success.
We will gladly remain at your disposal to answer any further questions you may have.
