ESG is (much) more than a required number in M&A

For some organisations, collecting data for ESG still feels like a mandatory task. However, in practice, this data provides extensive insights into internal business processes, which are valuable, especially for M&A processes.

Matthias Havenaar from the international accounting and consulting firm Baker Tilly explains how this so-called ESG due diligence works in practice and what opportunities it offers.

Especially crucial for organisations that are not yet accustomed to ESG

As far as Havenaar is concerned, it is crystal clear: ESG data provides a framework for any organisation to manage non-financial opportunities and risks. "ESG can be seen as an umbrella covering many different disciplines, from HR to governance to environmental impact. Especially in M&A processes, this can be valuable, because you can immediately see how mature a potential acquisition candidate is in terms of policy and whether the internal processes are in order."

Havenaar notices that some organisations embrace ESG criteria more willingly than others. "For many healthcare organisations, for example, gathering extensive data insights is already ingrained in their DNA. This approach ensures safe processes in risky environments. However, smaller SMEs aren't usually bound by as many regulations, so they may not be accustomed to collecting such data. Yet, ESG data can still be crucial in an M&A process—especially for those smaller SMEs."

ESG data makes a difference

Baker Tilly focuses primarily on SMEs and frequently guides them through acquisition deals. According to Havenaar, one notable aspect regarding ESG stands out: "In Europe, ESG data is mainly associated with regulations such as the CSRD. However, mandatory reporting of this kind applies primarily to larger companies, which are often the acquiring parties. On the other hand, acquisition targets are typically much smaller and not required to report. Consequently, they often have significantly less ESG data available, which nonetheless can be highly valuable and sometimes essential for a successful deal."

For strategic parties—those acquiring an SME client to expand market share or capacity—ensuring efficient alignment during acquisition is crucial. Therefore, It's recommended for potential acquisition targets to have their ESG data in order to gain comprehensive insights into their business processes. This preparation is beneficial not only during the deal but also afterward, facilitating smoother integration of the organisations. "Having ESG data in order significantly impacts the attractiveness of an acquisition target," emphasises Havenaar.

Don't forget about the (dark-) green funds, as they will be watched closely

Another, certainly not insignificant, category of acquiring parties are the so-called Article 8 (light green) and Article 9 (dark green) funds. These funds invest only under specific (ESG) conditions within the framework of the SFDR (Sustainable Finance Disclosure Regulation). The aim of these funds is to invest as sustainably as possible. In this context, having all ESG data available makes an acquiring party much more attractive

“There is simply more capital available when smaller acquisition targets also meet ESG criteria,” Havenaar explains. "This is one of the reasons why we've developed our own ESG due diligence process at Baker Tilly Corporate Finance. A comprehensive ESG due diligence framework provides structure and enhances the chances of a successful match.” Havenaar also mentions that platforms like Dealsuite incorporate these criteria: “Every week during our group meetings, we discuss the deals in the market. We've observed that ESG due diligence has played a role in many recent deals, so I would definitely consider this when moving forward with a deal.”

Get in touch with Matthias Havenaar from Baker Tilly through Dealsuite here. 

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