The importance of ESG in M&A transactions

A study of ESG performance in M&A transactions found that companies with high ESG ratings tend to achieve higher purchase prices. Depending on the industry, location and legal environment, sustainable companies can reduce financing, production and operating costs as well as external costs and insurance premiums. As a result, competitiveness, investment attractiveness, image and stakeholder relations can be improved, new markets can be accessed and the stability and predictability of profits can be positively influenced, which is why more sustainable companies may be perceived as more attractive takeover targets than less sustainable companies. In this sense, it was found that 75% of investors are willing to pay an ESG premium of between 1-10% for sustainable takeover targets.

The consideration of ESG criteria in M&A transactions also helps to minimize risk. Companies that neglect ESG factors are exposed to a higher risk of receiving regulatory penalties and suffering reputational damage. Underlining the importance of ESG criteria for the long-term stability and success of companies. The increasing number of ESG regulations worldwide is forcing companies to pay closer attention to these aspects in M&A transactions in order to avoid future compliance risks.

ESG factors are now an integral part of due diligence in M&A transactions. Most institutional investors currently carry out ESG due diligence as part of a transaction. This enables buyers to gain a more comprehensive picture of the long-term risks and opportunities of a potential takeover target. Poor ESG performance may result in a lower purchase price as well as the failure of a transaction.

​The integration of ESG criteria into M&A transactions has become increasingly important and is crucial for the success and valuation of takeovers and mergers. Companies with high ESG ratings achieve higher purchase prices and are perceived as more attractive takeover targets. Taking ESG criteria into account minimizes risks and meets regulatory requirements, which promotes long-term stability and success. Furthermore, ESG factors are now an integral part of due diligence as they provide a comprehensive picture of the risks and opportunities of a potential acquisition target. Overall, ESG criteria bring both ethical and economic benefits and significantly influence M&A transactions.

In the upcoming study conducted by Rödl & Partner, market participants were asked how they perceive the importance of ESG now and in the future, how often they take ESG criteria into account in transactions and at which stage.