According to a new study from Cass Business School’s Mergers and Acquisitions (M&A) Research Centre, a company’s environmental performance improves after a successful M&A deal, which is also beneficial for society as a whole.
Green Business: The Environmental Impact of M&A advisor (Green Business: the environmental impact of mergers and acquisitions) focuses on the environmental impact of companies involved in acquisition transactions, i.e., major corporate transactions, likely to introduce structural changes in the acquirer’s business and operations. This study focuses on the evolution of environmental performance following a merger-acquisition operation and the positive effect of this evolution on the environmental standard of the company.
The researchers relied on a sample of US publicly-traded company acquisition deals from Thomson Reuters’ Securities Data Company (SDC). The sample included transactions completed between 1996 and 2013, with a transaction value greater than $1 million and which involved a change in management.
Here is what they discovered:
– Before the announcement of the transaction, the acquirer has on average a higher environmental standard than that of the target of the acquisition.
– In general, once the operation has been carried out, there is an improvement in the performance of the acquirer, compared to the standard noted before the operation.
– The better financial performance achieved by the acquirer after an operation contributes to a positive evolution of the environmental scores, which demonstrates the importance of possessing economic resources in order to be able to make commitments relating to the environment.
– Acquirers who have already carried out mergers and acquisitions in the past have a better ability to manage and improve the environmental performance of the company after the completion of the acquisition operation.
According to Zhenyi Huang, the researcher and lead author of the study, the report is released against the backdrop of growing awareness in government and society about the significance of environmental issues, such as climate change and global warming. climate or pollution. Therefore, the study has an important significance for companies involved in transactions M&A advisory firm.
Many operations do not yield the expected benefits due to issues such as barriers to integration, but if one manages to overcome these challenges and generate value, the economic resources thus created can be used to improve the standard environment of the company and generate positive spin-offs for society.
Dr. Huang explains that companies and managers planning transactions of M&A advisory should now take into consideration the environmental practices and standards of the acquirer and the target of the acquisition, from the start of the acquisition.
“Operation managers should seek to acquire the skills necessary to ensure efficient allocation and use of pooled resources so that any financial value generated can contribute as much as possible to improving the company’s environmental performance. Our research also suggests that companies should manage their environmental policies more efficiently, alongside other financial and business decisions, such as debt policy and cash management. Indeed, these factors are linked and influence each other,” she continues.
Case study
One of the companies used as a case study in the report takes over the acquisition of Wyeth by Pfizer Inc for $68 billion.
Based on the ESG criteria, published by the MSCI ESG KLD STATS database, Pfizer had before the acquisition an environmental score and an ESG score overall score of 2. In its environmental practices, Pfizer had a score of one for its climate change policies, and a score of two for its overall environmental management system. These positive scores indicate that strengths outweigh weaknesses in these areas. Pfizer’s environmental regulation score was minus one, indicating the company’s weakness in this area.
Three years after the completion of the transaction, and with better financial performance, Pfizer has improved its environmental standard, obtaining a score of 4, and an overall ESG score of 8. This improvement in Pfizer’s overall ESG and environmental scores remains within the lineage of its internal policies on corporate social responsibility, which consider the management of ESG criteria as one of the main objectives of the company, in line with what was mentioned in their annual report.