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ESG due diligence leads to cancellation of more than half of M&A deals: KPMG

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According to KPMG's 2023 ESG Due Diligence study, over 53% of businesses have abandoned merger and acquisition (M&A) agreements due to significant environmental, social, and governance (ESG) concerns discovered during due diligence. The research, which involved surveying 200 US ESG professionals, including corporate and financial investors, as well as M&A debt providers, highlights the increasing influence of ESG factors on deal outcomes. A previous analysis by KPMG centered on ESG due diligence within the EMEA region indicated that ESG assessments were gaining prominence. The report revealed that four out of five dealmakers confirmed that ESG considerations have now firmly secured their place on the M&A agenda.

In cases where ESG deficiencies do not outrightly thwart a deal, they often exert downward pressure on the sale price. The study's results indicate that 42% of US respondents noted that ESG due diligence findings had led to reductions in purchase prices.

Conversely, robust ESG performance can enhance a company's valuation. The study revealed that over 60% of investors expressed a willingness to offer a premium for businesses demonstrating advanced ESG maturity and alignment with their core priorities. Among these investors, more than a third indicated that the premium might exceed 5%.

The research also highlighted that a significant majority of investors (74%) have already incorporated ESG considerations into their M&A strategies. The primary motivations for conducting ESG due diligence included the identification of risks and opportunities (46%), investor demands (19%), and proactive readiness for anticipated regulatory obligations (14%).

Clare Lunn, ESG partner at KPMG US: "As the global landscape continues to transform, so do the expectations placed upon businesses. Our latest ESG Due Diligence Survey underscores an inescapable reality: Sustainable practices have transitioned from being merely a choice to being an essential prerequisite for fostering resilience and achieving growth."

The survey respondents outlined several key challenges encountered while performing ESG due diligence. The most prominent hurdles included a lack of robust data availability (59%), difficulties in defining a meaningful scope for assessment (56%), and challenges in quantifying the outcomes of the evaluation (45%).

Mark Golovcsenko, KPMG U.S. ESG and Climate Services Leader, emphasized, "The data unequivocally underscores the trend: Companies and investors are increasingly factoring ESG considerations into their M&A strategies. This shift is driven not only by ethical and responsible motivations but also by the tangible value implications that ESG brings to the table."


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