November 5, 2024

  • 2022 Deal Volume Down 13% and Deal Value Down 32% Versus 2021
  • New Report from BCG Forecasts that ESG Considerations Will Drive More Deals in the Face of Challenging Macroeconomic Conditions

BOSTON, Oct. 24, 2022 /PRNewswire/ — The global M&A market has cooled relative to 2021’s exciting pace of dealmaking, with challenging macroeconomic conditions putting an end to acquisitions followed by the easing of COVID-19 restrictions. In the first seven months of 2022, companies announced more than 22,000 deals, with a total value of $1.85 trillion—a level of M&A activity more in line with the pre-pandemic average than last year—according to a new report by Boston Consulting Group (BCG) in collaboration with Professor Sönke Sievers of Paderborn University.

BCG’s 19th annual analysis, titled “The 2022 AD&A Report,” predicts that environmental, societal, and governance (ESG) considerations will drive an increasing number of deals, despite poor macroeconomic conditions. The report found that the global number of deals related to of ESG increased from about 5,700 in 2011 to all.-time highs of about 9,200 in 2021—a 60% increase.Dealmakers recognize the value-creating potential of these transactions.

“M&A activity in 2022 slowed in 2021, with deal volume and deal value down 13% and 32%, respectively,” said Jens Kengelbach, BCG’s global head of M&A and a coauthor of report. “However, even in the current environment of high inflation, rising interest rates, and slow economic growth, we see longer-term trends that will help offset activity. The number of deals that relate to the environment has doubled. Beyond traditional motivations, sustainability is growing in importance as a factor in acquiring or disposing of businesses.”

Green Deals Gain Traction

BCG’s analysis reveals a clear upward trend in ESG-related deals over the past decade, with the strongest acceleration occurring in 2021, when deal volumes jumped 35% after in two slower years for broader M&A activity and ESG transactions.

Although deals related to the environment (that is, “green deals”) account for only a small part of all M&A transactions, they have increased in recent years – up 6% in 2021 after hovering at 5% from 2011 to 2019. The 20 percent increase from 2019 to 2021 shows that green dealmaking is gaining traction as a strategic lever for environmental change.

Green M&A is growing particularly rapidly in industries at the forefront of the energy transition and in emerging markets. Over the past ten years, the energy and utilities industry has had the highest share of green M&A and the biggest increase, seeing its share of green deals grow from 20% in 2011 to nearly 40%. % in 2021. According to the report, the region with the highest level of green M&A activity in 2021 is Middle East. More than 10% of deals in that region in 2021 will be related to the environment, after a steady share of around 3% to 5% since 2014. Asia-Pacific (especially China) is the second most active region, with a share of green deals of approximately 8% in 2021.

Do Green Deals Create Value?

As green deals become more popular, they become more expensive. Average acquisition prices for these deals have exceeded the overall market average by approximately 7% over the past three years, with premiums of 20% to 30% in some industries. .

However, BCG’s analysis revealed that despite the large premium they usually command, green deals generally generate more value than non-green deals in the announcement and the following two years. By analyzing the cumulative abnormal return (CAR) over the three-day periods before and after a deal announcement, BCG found that the median CAR of environmentally-related transactions (1.0%) is significantly higher than nongreen deals (0.6%). The report also determined that the median two-year relative total shareholder return (rTSR) of green deals (0.6%) outperformed nongreen deals (0.4%).

“Green deals often command a large premium—as high as 20% to 30% in some industries–but our research shows that, in many cases, the price is reasonable,” said . Daniel Friedman, a managing director and partner at BCG and co-author of the report. “In the short term and in the longer term, the message is clear: companies that use the right approach to green dealmaking generate higher returns.”

Download a copy of the report here.

Media Contact:
Eric Gregoire
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About Boston Consulting Group
The Boston Consulting Group works with business and social leaders to address their most pressing challenges and seize their greatest opportunities. BCG was a pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at the benefit of all stakeholders—empowering organizations. to grow, build a sustainable competitive advantage, and drive a positive impact on society.

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SOURCE Boston Consulting Group (BCG)

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