By Hamish Gray, Senior Vice President, Keysight’s corporate services organization
Submitted by Keysight Technologies
As Senior Vice President of Keysight’s corporate services organization, my purview spans customer experience and quality, government affairs, mergers and acquisitions (M&A), and corporate social responsibility (CSR), among others. Traditionally disparate functions, the increasing connection between environmental, social and governance (ESG) performance — which is tracked within the scope of CSR — and business results has driven growing interconnectivity between these functions.
I have been particularly intrigued with the intersection of CSR and the M&A function. This is not to say that ESG topics never before came up in M&As, but recent societal and climate events have particularly raised the bar on environmental sustainability and social impact considerations throughout the M&A process. From stakeholder engagement and across phases of an M&A implementation, examination of ESG elements is critical to the process for both corporate buyers and sellers.
ESG expanding traditional stakeholder engagement for M&As:
Traditionally focused on the investment community and corporate executive interests, M&A practitioners are recognizing the need to expand stakeholder ESG considerations to more directly include:
ESG’s increasing considerations for both corporate buyers and sellers
While M&A stakeholder engagement may lean more heavily on the corporate buyer impact in terms of future business implications, both the buyer and seller entities in an M&A engagement have a vested interest in ESG performance.
From a seller perspective, having proven ESG-related policies, processes, culture, and impact results make it a more attractive target. Often, they can connect their ESG efforts to business resilience, lower their risk profile, and exemplify the ability to more readily integrate with other well-performing companies with positive ESG profiles. As such, having solid performance in this space before considering an M&A engagement helps corporate sellers achieve a higher valuation while speeding negotiations and close activities. This is not only good for the traditional investor and executive stakeholders that will gain financial value from the divestiture, but also for other stakeholder groups that will benefit from continuity in business performance and a more natural alignment with other ESG-focused companies during transition.
From the buying entity’s perspective ensuring long-term acquisition success and business resilience is key in the ESG considerations space. In this case, it is critical across the M&A process to assess ESG risk and opportunities that could impact the operational model, brand perception, community engagement, and cultural alignment of the target and legacy companies.
Emerging ESG considerations across the M&A engagement process
While there are multiple ESG considerations throughout an M&A engagement, some recent developments have resulted in new considerations for M&A teams at different phases of the process.
ESG performance in M&A engagements is a win:win:win+
Today, the success of an M&A engagement is simply not possible without a clear ESG risk and opportunity assessment of the target company, valuation alignment, and planning across the integration process. The outcome builds a true win:win:win+ whereby buyers experience long-term success and business resilience, sellers gain value through ESG performance, customers maintain or gain ESG partnerships, workers engage in high-value development and purpose, and as a result, communities prosper.
Keysight Technologies, Inc. (NYSE: KEYS) is a leading technology company that helps enterprises, service providers and governments accelerate innovation to connect and secure the world. Keysight's solutions optimize networks and bring electronic products to market faster and at a lower cost with offerings from design simulation, to prototype validation, to manufacturing test, to optimization in networks and cloud environments.
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