Merger Due Diligence Considerations Amid Rising ESG Focus
The mergers and acquisitions space remains active despite the economic challenges presented by the ongoing pandemic. In December 2020, 952 transactions were completed — nearly as many as the 1,085 deals closed in December 2019, an indication of a strong rebound despite turbulent times. Acquisitive firms are dealing with an evolving set of challenges as the corporate landscape continues to shift from its traditional focus on immediate shareholder value to a more holistic paradigm of stakeholder capitalism.
Over the past decade, sustainable and socially motivated decision making has been incorporated into most major firms, and studies have found that companies which place at least some emphasis on environmental, social and governance factors tend to financially outperform those that do not.
In addition to knowing who the owners and key stakeholders of an acquisition are, gaining a deeper understanding of the acquisition's operations and material supply chain partners, including third-party vendors or suppliers, is important and carries its own set of unique challenges. Prospective acquirers must consider the evolving nature of risk by looking beyond financial fundamentals and legal requites. Corporate social values of a prospective target may soon require the same consideration as its balance sheet.
In this Law360 article, authors Matt Flug and Brad Dragoon discuss new changes in due diligence with the implementation of ESG. These shifts can impact business' compliance with shifting environmental and social concerns and this article describes scenarios where issues can occur.
Matt Flug, Vice President, DUAL Transactional Risk
Brad Dragoon, Associate Principal, Charles River Associates