With the structural climate/sanitary reality and economic challenges, ESG (Environmental/Ecological, Social/Sustainable and Governance) has grown in importance for all stakeholders of an enterprise. So it’s no surprise that ESG has also become a hot topic in M&A projects and that Tax and Legal related ESG topics should be included in every step of a deal process:
(i) pre-deal phase: deal sourcing / target identification / due diligence
(ii) execution phase: structuring the transaction and negotiating the SPA
(iii) post-deal phase: operational and legal integration of the target company
In the pre-deal phase, a potential buyer may want to include some key ESG parameters to determine its longlist/shortlist of potential targets, whereas a potential seller may want to anticipate and maximize the value of the target by upskilling/regularizing its ESG compliance.
Crucially, ESG due diligence should help the purchaser to incorporate the target company into its business and ensure the complex risks associated with ESG issues are identified and minimized before significant reputational damage or financial liabilities grow. The importance of performing an ESG due diligence prior to entering into a transaction bringing great benefits to investors cannot be denied.
Tax-related ESG aspects are e.g. green and environmental taxes and the question whether Target has a sustainable tax paying level and a robust tax risk control framework. Legal-related ESG aspects are e.g. new legislation (“hardlaw”), human rights aspects of workforce and upcoming ESG reportings.
We refer to the enclosed newsletter for more information on “Tax and Legal aspects of ESG in the pre-deal phase”.
In a next M&A Newshub article, we will address the second and the third deal phase.
Contribution by Pierre Queritet, Sarah Van Leynseele, Jessica De Bels, Alexandra Bihain and Quinten Smits