ESG concerns driving abandoned deals, premiums in M&A: Deloitte survey
LONDON, UNITED KINGDOM — Environmental, social and governance (ESG) factors are increasingly influencing mergers and acquisitions (M&A), leading to a significant shift in dealmaking strategies, according to a recent report by global professional services firm Deloitte.
The survey, conducted in January, involved 500 M&A leaders from corporations with at least $500 million in revenue and private equity firms with at least $1 billion in assets under management across North America, Europe, the Middle East, and Asia Pacific.
Abandoning deals over ESG concerns on the rise
The Deloitte study revealed that 72% of respondents have decided not to proceed with a potential acquisition due to concerns about the target’s ESG performance, up from 49% in 2022.
Additionally, the demand for discounts on acquisitions with poor ESG performance has also grown, with 67% of leaders seeking at least a 3% cut, up from 36% two years ago.
“Buyers most likely to abandon deals because of a poor ESG profile are in Technology, Media & Telecommunications (82%) and Private Equity (80%), while 96% of buyers in both TMT and life sciences and health care are most likely to apply a discount to what they are willing to pay if the target entity has a poor ESG profile.” the report said.
Premiums for strong ESG profiles
On the other hand, 83% of respondents are willing to pay at least a 3% premium for assets with robust ESG profiles, a sharp increase from 62% in 2022. Furthermore, 14% stated they would pay premiums exceeding 6%.
Brooke Thiessen, Partner at Deloitte Canada, emphasized the gravity of this finding, stating, “Abandoning a deal is certainly not an easy decision. While commercial or operational concerns are often the main reasons for walking away from a deal, ESG red flags are increasingly being considered with the same level of seriousness to either pause or end deal activity.”
Improved data and measurement driving ESG integration
The survey found that 57% of organizations now measure ESG with clearly defined metrics, up from 39% in 2022.
Ninety-four percent of non-C-suite employees expressed high or very high confidence in accurately evaluating a potential acquisition target’s ESG profile, whereas only 87% of the C-suite felt this same way.
Tanay Shah, M&A ESG Leader at Deloitte, attributed this shift to “advancements in the strategies and tactics used to improve ESG footprints,” enabling “significant progress in the frequency in which ESG is considered as part of a standard pre-close process for both corporates and private equity firms.”
The findings underscore the growing recognition among leaders that ESG is a lever for measuring, protecting, and creating value in the M&A process, with sustainability considerations becoming deeply embedded in dealmaking strategies.
