Expert View DON’T OVERLOOK THE
IMPORTANCE OF ESG by Nick Hodgson
Senior associate corporate, Forbes
In the world of corporate transactions, buyers, investors and sellers are placing greater emphasis on Environmental, Social, and Governance (ESG) credentials and if they’re not, they ought to be.
ESG criteria are reporting practices used by businesses and are a set of standards for a company’s operations that socially conscious buyers use to screen potential acquisitions.
As ESG continues to gain importance in transactions, both buyers and sellers are starting to realise that ESG credentials are a source of increasing value. Research suggests that there is a positive link between ESG performance and financial performance.
Consequently, a buyer may choose to review the price it is prepared to offer for a business on discovering ESG liabilities during the due diligence process.
For example, a buyer will not only want to review the target ESG activities as part of the due diligence exercise but will also want to similarly review the supply chain. Likewise, these factors will be considerations for investors.
As time goes by, jurisdictions are introducing statutory ESG commitments, and it can only be a matter of time before the UK adopts similar provisions so it would be advisable to make ESG best practice and ‘get the house in order’ now in advance of any statutory requirement.
Admittedly in the current climate, implementing an ESG strategy can be time consuming and expensive, but the payoff can be worth it in the long run.
Further, it is thought that funders may offer more favourable terms to the borrowing buyer where ESG commitments are met. Indeed, over the past two years access to ESG linked finance has increased and we only assume that it will continue to do so.
While ESG has traditionally been overlooked in the corporate transaction world, buyers, sellers and investors are realising its inevitable rise in prominence.
Sellers who engage in ESG diligence improve their business valuation and competitive market pricing, while buyers and investors can better evaluate their targets.
Steve Bell Corporate finance director
@pcaltd /company/pierce-group-ltd
@PierceCA
GROWTH THROUGH ACQUISITION
An acquisition can be an attractive way for a business to achieve growth through the purchase of a complementary product portfolio, entry into new geographical markets and the securing of technical skills or innovative technology.
Value can be delivered through expanding the client base, reducing costs, improving margins and ultimately improving both profits and cash flow.
There are several fundamental steps to consider in contemplating an acquisition:
•Planning: Can you identify a clear strategy that will set out the rationale for the acquisition, clearly establishing the financial and commercial objectives.
•Value proposition: Can you identify how value will be created and if the acquisition will allow the company to differentiate itself from the competition.
•Funding: How will the acquisition be funded. Do you have sufficient cash resources or are you aware of the range of debt and equity options that are available in the market.
The process of an acquisition follows five key components to result in a strong and effective transaction:
•Advice. Ensure that you take commercial, experienced advice through the transaction.
•Win-win. The acquisition needs to be attractive to the vendors whilst also creating value for the acquisitive company.
•Well planned. The success of the acquisition relies upon the critical details of the transition being mapped out.
business and that is a big thing for us. We look for businesses with the same family values that we have.”
Paul says that the business follows “five golden rules” when it comes to its acquisition strategy and its targets.
“Rule number one is, it can’t be broken,” he says. “Secondly, it has got to have good people, who will stay on.”
Paul adds: “We’ve got to understand the business and that it fits in the sector we work in, and that’s important.”
His next rule is that the group must be able “to unlock hidden value” from the business it is acquiring.
And the fifth golden rule? Paul says: “Every business we have bought is a family
This acquisition makes perfect sense for us
“There’s an emotional aspect to family businesses. If you are emotional about something you are generally motivated and that is a big factor for us.”
Paul adds: “The aim is to carry on the road we are going down and taking advantage of the right opportunities that are the right fit.”
“However, we don’t ever want to be in a position where we lose that family feel.”
LANCASHIREBUSINESSVIEW.CO.UK
•Due diligence. Make sure that you understand the detailed operations of the target business.
•Integration. The acquisition has to be integrated into the group and therefore a 100 day plan should be prepared which outlines the initial strategy.
An acquisition can be transformational for a business, creating real value. The Pierce Corporate Finance team has extensive commercial experience to guide you through the complexities of a transaction.
For more information please visit
www.pierce.co.uk
or call 01254 688100
27
DEALMAKERS
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