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ESG factors now a core M&A topic in UK boardrooms

An inside-out study of UK mid-market M&A

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Evidence from recent deals suggests ESG considerations and ESG due diligence are more important than ever before in the UK M&A market

Almost all (99%) institutional investors consider ESG when deciding whether to support a M&A deal

Around three-quarters of institutional investors and FTSE 250 directors believe activist investment may be beneficial

Many institutional investors believe interest in a company by activist investors can have the most significant impact on how its capital is allocated, along with bringing governance benefits

A company’s environmental, social and governance (ESG) agenda is likely to feature more in mergers and acquisitions (M&A), as corporate acquirors place greater importance on ESG due diligence and almost all institutional investors consider ESG factors before deciding whether to support a deal, new research by Numis has revealed.

Our survey reveals a tiny fraction – less than 1% – of the 200 institutional investors we surveyed say they do not consider ESG at all when considering supporting an M&A deal.

Most of our respondents have strong feelings about ESG and the role it plays in deals. Fewer than one in five institutional investors (19%) say they only consider it ‘somewhat’, while the remaining 81% say they consider ESG factors ‘strongly’ or ‘very strongly’ when thinking about whether to support an M&A deal.

ESG has risen up the agenda in recent years, with companies taking more time to consider the carbon footprint and ESG aspects of the assets and businesses they are acquiring. In addition, institutional investors must now be much more aware of ESG and assess the ESG characteristics of their corporate and private equity portfolios. 

 

“The consideration of ESG factors is now established as a key feature of M&A transactions, and buyers, sellers and owners have it as a high priority. Regulation is increasingly targeting ESG, and the recent COP26 conference in Glasgow helped to focus minds on the issue at hand – that there must be a global effort from all sections of society, including business and finance, to combat climate change. 

“With around four in five institutional investors feeling strongly about ESG factors when deciding whether to back an M&A deal, companies acquiring or being put up for sale need to be aware of ever-increasing ESG standards.” 

 

Stuart Ord Managing Director, M&A Advisory

Shareholder activism – by both institutional investors and dedicated activists – is often associated with ESG. However, these two groups should not be referred to interchangeably. The most prominent activists have a strong view on value and how it should be maximised, whereas many institutional investors have a specific set of values or investment philosophy relating to ESG in mind. 

There is a perception that activist investors and boardrooms are often at odds; however, we found both institutional investors and FTSE 250 directors feel generally positive about the outcomes that can be created by their presence. Three-quarters (75%) of institutional respondents say activist investors are either broadly or mostly positive, and a similar number (73%) of FTSE 250 directors feel the same way. Institutions feel activists are particularly well placed to improve the capital allocation of a company, and its governance. 

 
To find out more, please contact the Numis M&A team or your usual Numis representative.

Stuart Ord

Managing Director, M&A Advisory

Email Stuart

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