Environmental, social and governance (ESG) matters rapidly rose up the corporate agenda in 2019, such that ESG is now a mainstream issue across all areas of corporate life, including in mergers and acquisitions (M&A), global law firm Herbert Smith Freehills states in a new report, entitled ‘M&A in 2020: The New Normal’.
The report analyses this key trend that has come to the fore in the past 12 months owing to increased awareness of climate change, unease with globalisation and pressure from activists and consumers.
It also highlights the ESG risk and reputational issues that dealmakers need to be mindful of in any buy or sell situation.
“ESG matters are now mainstream and can no longer be considered an afterthought in M&A decision-making. They demand heightened attention on M&A transactions, across all sectors.
“Thorough ESG due diligence and post-transaction risk management should now be part of the M&A practitioner's toolkit,” suggests Herbert Smith Freehills M&A Global head Gavin Davies.
The report also focuses on three other key M&A trends from 2019 that lawyers at Herbert Smith Freehills expect will continue this year.
The first is the return of public-to-private bids, as financial buyers, from private equity investors to pension funds and family offices, perceive greater value in underpriced public equity markets than in overcrowded private auctions.
Secondly, there is the trend of political intervention, which remains a risk that buyers and their advisers must navigate carefully as the widespread tightening of foreign direct investment regimes continues.
Lastly, there is the trend of disruption to the deal, with threats that can include challenges from shareholders, competing buyers, finterventionist governments and antitrust regulators increasingly willing to exert their powers.
“Despite a sustained environment of geopolitical uncertainty, overall M&A activity in 2019 remained healthy. That said, the market continues to adopt ever-greater care around deal execution against the ‘new normal’ backdrop of potential deal disruption.
“It is essential that dealmakers continue to plan carefully to minimise the timetable and risk to completion,” says Herbert Smith Freehills M&A partner and a co-author of the report Caroline Rae.
The report also provides insights from Herbert Smith Freehills' lawyers in Africa, Asia, Australia, China, Europe, the Middle East and the UK on regional activity in 2019, and the outlook for 2020.