While global mergers and acquisitions (M&A) activity has skyrocketed over the last year, climate-change concerns, which represent the greatest emerging risk to completing M&A in the next 12 months, could dampen the pace going forward. This is according to the findings from a survey of 400 US and UK dealmakers by Datasite, a leading SaaS-based technology provider for global mergers and acquisitions (M&A) professionals.
The research shows that 44% of dealmakers expect climate-change concerns to be the biggest dealbreaker in the next 12 months, ahead of concerns over COVID-19, inflation, regulation, and geopolitics. Similarly, 64% of dealmakers expect to see more deals fall apart because of climate-change related due diligence risks over the next two years. Most dealmakers (26%) see regulatory risks as the biggest culprit for deal failures, followed by physical asset risks (23%) and litigation risks (22%).
“To remain competitive, businesses need to build sustainability into their operations and dealmakers need to understand every risk associated with potential assets, including all environmental, social, and governance (ESG) risk,” said Rusty Wiley, CEO of Datasite. “Given this, dealmaking will become even more dynamic and the due diligence process even more complex, which means dealmakers will benefit from digital tools that help make the process more efficient and effective.”
Climate change shifting M&A strategies
In fact, in the next five years, 89% of dealmakers expect climate-change risks to impact their M&A strategies, with most (26%) expecting to use restructuring to deal with climate-change challenges, followed by vertical acquisitions (23%) and entry into new markets (22%).
New policies, technologies to spur most climate change M&A
Still, dealmakers also see investment opportunities ahead, especially in green energy initiatives in the energy and power sector. Dealmakers were divided over what would drive the most climate-change related M&A, with an equal 37% pointing to new regulations, including policy transition to net zero, and new technologies, including clean tech.
“Global weather and public health crises have set off warning alarms to businesses everywhere and as leaders prepare to meet at the UN Climate Change Conference in November (COP26), dealmakers and their boards are taking steps to mitigate ESG issues, especially environmental issues,” said Wiley. “At the same time, they are using ESG to create value and tap into a growing area of interest among investors, who have closed as many climate-focused funds in 2021 to date, as in the last five years combined.”
According to 70% dealmakers surveyed, not only has ESG moved up the board priority list, with environmental factors registering as the highest priority, but more than half (53%) said their companies are preparing for climate-change related activist intervention.
Climate change gets personal
Dealmakers themselves are also worried about how climate change may affect their personal lives. More than 90% said they are extremely to moderately concerned about the impact of climate change on their future quality of life, while 82% said that a company’s ESG policies, including those related to climate change, are important to very important, when evaluating a job opportunity.
Notes for editors
Datasite surveyed 400 US and UK-based dealmakers, director level and above, involved in corporate development, banking, private equity and legal, in September 2021.