Introduction

In this section:

Dealmakers have rarely experienced a period like it. Global M&A activity continues to accelerate at a rapid rate in both private and public markets, as recovery from the lows of the pandemic continues. In the first half of 2021 alone, private equity (PE) firms engaged in the largest number of buy-outs since the data was first recorded over 40 years ago. And a boom in special purpose acquisition companies (SPACs) has added extra momentum in 2020 and 2021, although that has subsided in recent months.

This environment, termed an M&A “frenzy” by some, presents companies with new opportunities to create value through IPOs, acquisitions, fundraising or divestments. But there is considerable risk of leaving the value on the table – or worse should litigation follow. It's essential that dealmakers and the C-Suite understand how they can fine-tune due diligence in order to realise this value and reduce the transaction risks. This report offers companies options for improving their due diligence practices, as well as insights into how the M&A environment is evolving.

Coping with Complexity

The fact is that M&A transactions are becoming increasingly complex, marked by features that would have been unfamiliar to dealmakers just a few years ago: the prominence of ESG considerations; the centrality of digital technology to most business models; and ferment in public markets. The rising influence of these factors on M&A demands new ways of thinking about value creation and risk. “We can expect more scrutiny and more critical challenges of deals going forward,” says Claudio Feser, Senior Advisor, Aon EMEA M&A Advisory Board. “That will require accurate views of organisations’ ESG practices, their intellectual property (IP) and their digital agility. There will be more of a need to prove the viability of those investments, and thus a heightened attention to the risks associated with them.” The demands on companies’ due diligence practices, then – whether it is buyers assessing acquisition targets or sellers putting their best foot forward – are rising fast. On this hinges the parties’ ability to realise the full value of deal transactions; increase risk visibility; and harness opportunities to transfer risk, for example via structured insurance instruments. Traditional approaches will no longer suffice. Specialised due diligence that digs deep into emerging ESG, digital, and other transaction risks, and can unlock value hidden in IP assets, must become standard practice.

“With extremely thorough due diligence, I will gain a better knowledge of the risks in a transaction. If I’m on the buy side, I will be able to cover myself through insurance or through seller reps and warranties. If I’m on the sell side, I will be able to manage those risks in advance, hopefully reduce them, and get a better price.”

Maria Marta Geraldes Head of Corporate Finance, Galp

Dealmakers are Investing More in Due Diligence

Considering the current economic environment, are you dedicating more resources than in the past to due diligence processes when considering a transaction?

Source: Aon, Risk in Review, 2020-2021

The Interview Panel

To understand how ESG, digitalisation and developments in public markets are impacting M&A, we have drawn insights from dealmakers and experts who are advising them. While these insights are wide-ranging, the core advice may be summarised as follows:

Be forensic in your diligence: The nature of companies’ key assets and potential vulnerabilities has evolved. It’s time for a new approach to due diligence.

Embed ESG and digital in enterprise risk management: Senior management must treat ESG, cyber and other digital considerations with deadly seriousness, as the associated risks to companies are rising. At the same time, fully integrating these into everyday enterprise risk management is the best way of ensuring that they are properly monitored and mitigated.

Keep an eye on the long term: By looking at ESG, digital and other risks from a three- or five-year perspective, not only that of the next transaction, investors and companies can start acting now to manage risks, draw on new sources of value, and be ready to maximise returns from a sale or IPO down the road.

Transaction Principals

Caroline Cormier Vice President of Corporate Strategy, Upfield
Simon Dingemans Managing Director, Carlyle
Claire Dorrian Head of Sustainable Finance, Capital Markets, London Stock Exchange Group
Maria Marta Geraldes Head of Corporate Finance, Galp
Ayuna Nechaeva Head of Europe - Primary Markets, London Stock Exchange Group
Nicholas O’Donohoe Chief Executive Officer, CDC Group
Andreas Thors Senior Lead Operator, Partners Group
Carlisle White ESG Manager, Copenhagen Infrastructure Partners

Advisors

Marvelle Sullivan Berchtold Founder & Chief Executive Officer, Marvelle Co and former Head of Group M&A at Novartis
Natasha Good Global Co-Head of Tech, Media and Telecoms, Freshfields Bruckhaus Deringer
Piers Prichard Jones Partner, Corporate M&A, Freshfields Bruckhaus Deringer
Adam Young Head of Equity Advisory, Rothschild

Aon Executives & Experts

Andrew Ballheimer Senior Advisor at Aon’s EMEA M&A Advisory Board and formerly Managing Partner, Allen & Overy
Claudio Feser Senior Advisor at Aon’s EMEA M&A Advisory Board and Director Emeritus & Senior Advisor, McKinsey & Company
Edwin Charnaud Chairman EMEA, M&A and Transaction Solutions
Ian McCaw Head of Digital, M&A and Transaction Solutions
John Cullen Chairman at Aon’s EMEA M&A Advisory Board
Meredith Jones Global Head of ESG
Michael Carr Chief Commercial Officer, M&A and Transaction Solutions
Robin Lawther Senior Advisor at Aon’s EMEA M&A Advisory Board and Non-Executive Director at Nordea Bank, Ashurst LLP and UK Government Investments
Tim Giles Head of Investment, UK & EMEA

Buyer Beware: Transacting ESG Risks and Rewards

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