ESG is becoming a core consideration in many business’ M&A strategies and with good reason. Numerous studies have demonstrated that companies with strong ESG credentials attract higher market valuations than those that are comparatively weaker. It stands to reason, then, that incorporating ESG into an acquisitive growth strategy can pay major dividends for a company’s valuation. Numerous studies have demonstrated that companies with stronger ESG performance attained significantly higher valuations than those that were weaker, with one showing that a 10-point higher ESG score was associated with approximately a 1.2x higher EV/EBITDA multiple.
One of the key reasons why investing in ESG can deliver such a boost to a company’s valuation is the ESG value premium. Investments in ESG have been widely shown to generate higher long-term returns, lessen exposure to risk and deliver a wealth of operational improvements. Of course, there are organic means of developing ESG credentials, but M&A can enable companies to improve their ESG performance rapidly, while adding valuable talent and expertise that exists at other firms. What's more, buyers with ESG-focused acquisition strategies also have access to a growing range of financing options, something that could prove invaluable amid the current economic uncertainty.
You can read about all these benefits and more in our full report on integrating ESG into your M&A strategy.
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