It’s no secret that ESG has been a growing concern for some years now in the mergers and acquisitions space, moving from a side-of-desk issue to one at front and centre of the process. With companies keen to make ethical, sustainable acquisitions that complement their own strategic efforts, it’s now become a deciding factor in whether or not transactions progress, with Deloitte reporting that over 70% of acquisitive corporates have pulled out of deals as a direct result of ESG concerns.
It’s not just an increased focus on ESG either. With more and more companies embedding specific ESG metrics into their M&A strategies, it’s easier than ever to actually measure a target company’s credentials. This means the days of greenwashing are all but behind us, with a much greater ability to access and assess the claims a company makes, it’s never been more important to put your money where your mouth is in terms of your ESG commitments.
This data confirms that ESG is no longer a sticking plaster you can apply at the end of a process, but something you need to get ahead of now if you’re thinking of selling, for several key reasons:
- Valuation – with the vast majority of companies happy to pay more for a company with an embedded ESG strategy, it’s now one of the must-have items on your to-do list, so even if you’re considering selling in the medium term, solidifying your stance on this issue and preparing for future due diligence increases your chances of maximising your returns.
- Momentum – in today’s uncertain market, funders and buyers already have myriad issues to consider in whether or not to pursue a transaction, and many of these can impact timelines and introduce friction to the process. Evidencing your ESG stance with practical, measurable outcomes, reduces the timeline to a successful deal, and removes barriers for potential investors.
- Reputation – Demonstrating that your company has values and ideologies that it not only documents, but lives by, increases the perceived value of your brand as well as your business, directly influencing the above factors. So telling your story publicly conveys commitment and places your offering as an attractive, stand-out prospect in today’s competitive marketplace.
So where do I start?
There are many ways in which you can improve your ESG credentials ahead of a potential sale, and the specifics will vary depending on your particular industry or sector. For example, companies with industrial manufacturing processes or disparate distribution networks are facing heightened pressure to rationalise their supply chains and third-party partnerships to decarbonise processes and reduce emissions across the entire product lifecycle. But some things we’re seeing are pretty universal, and the first step is a solid strategy:
- Take a stance – Whether you commit to supporting specific causes relevant to your industry, or to decarbonising a specific area or process – documenting it and embedding it in everything you do is no longer a nice-to-have. At LAVA, we’ve committed to doing business better through a concerted campaign to improve youth mental health, providing both practical and financial support to a variety of amazing charities.
- Make it measurable – Putting metrics behind your goals not only makes it easier to motivate your team, but also sets you up for a much smoother due diligence process when the time comes. We commit 2.5% of our annual revenue (not just profit) to our charitable partners, meaning every time you work with us, you’re improving your own ESG creds with a portion of your fee going directly to worthy causes.
- Walk the talk – Publicly committing to your specific causes or goals can also enhance your prospects, reassuring potential buyers that you’re prepared to stand behind your statements. At LAVA, we have a dedicated storytelling function to draw out the story behind the stats and help you articulate your achievements in the best possible light, ensuring you’re a standout option for any potential buyer.
For a confidential discussion of your specific situation, and what you can do to maximise your value ahead of a potential sale, get in touch with our dedicated team today.
