Pundits expects global merger and acquisition (M&A) to increase in the second half of 2023 and they expect that environmental and social governance (ESG) to play a larger role in due diligence.

While investors said M&A deals would rise in 2023, the threat of recession, rising interest rates and geopolitical tension remain threats, according to the consultant PwC. About three-fifths (60 per cent) of chief executive officers told the firm that they would not delay deals because of those risks.

Outlook

“The outlook finds that M&A – and particularly portfolio optimisation – continues to represent a strategic opportunity for market players,” the report said, irrespective of challenging macroeconomic and geopolitical factors.” Chief executive officers are most likely to use the tool to reposition their businesses, bolster growth and achieve sustained outcomes over the longer-term, it said.

The law firm Bain and Company said that it expected most deals to be in the small and midsize end of the market.

This year could also be a strong year for M&Ss in the energy and infrastructure sector, according to the law firm Allen and Overy. Middle East, Southeast Asia, Japan and UK will be hotspots of activity, it said, and investors are likely to show renewed interest in digital assets.

Boards and ESG

As companies deepen their own approaches to ESG they are increasingly looking at how acquisition and merger targets align with their own values and practices. ESG can be used as an effective risk management tool in dealmaking. But ESG is often open to interpretation and boards could find themselves focused on factors that are not crucial to the success of the M&A Afra Afsharipour, professor of law and senior associate dean for academic affairs, at UC Davis School of Law in the US.

“It can be difficult to assess and incorporate ESG risk analysis in M&A dealmaking,” she wrote recently. “Given the lack of clear regulatory guidance on ESG, there may also be questions about the accuracy of a particular firm’s ESG disclosure.”

The speed at which deals often need to be conclude also pose problems to such analysis.

Click here for information on IRM’s Environmental and Social Governance Interest Group.