During due diligence, a company is carefully analyzed on economic, legal, fiscal and financial aspects. Given current developments, sustainability should no longer be missing from this list.
It is essential to determine the risks and opportunities in the field of sustainability so that these can be included in the negotiation of the purchase price and the purchase agreement. Sustainability is playing an increasingly important role in business operations.
Man's impact on the planet is becoming increasingly clear, which has led to legislation and regulations in the field of sustainability. In addition, more and more people are pursuing a sustainable life. Sustainability offers both opportunities and risks when acquiring a company, and it is becoming increasingly important to integrate it into the due diligence process.
Risks with direct impact on the valuation of the target:
- Valuation of assets in relation to laws and regulations:
When valuing assets, applicable sustainability requirements must be taken into account. For example, low-emission vans and trucks may not be allowed in certain zones starting in 2025, and commercial properties with an energy label lower than C may have a lower value due to necessary energy-saving measures. Machinery that does not meet the energy savings requirement may age faster than expected, affecting their value.
- Level of (expected) costs:
Future expected results are of great importance during the due diligence process. If the expected costs do not take into account necessary investments to achieve sustainability goals, the costs may be underestimated, leading to an overvaluation of the target.
Risks with impact on acquisition financing:
When attracting financing for the acquisition of a company, sustainability is increasingly a crucial factor. In the future, financial institutions may no longer provide credit to companies that are not demonstrably concerned with sustainability.
This can complicate obtaining credit for the purchase. However, businesses that actively pursue sustainability can benefit from greater credit facilities and interest rate discounts, which affects the overall cost of the acquisition. It is wise to factor this into the negotiations.
Other important points of interest:
- Legal risks and reputational damage:
Businesses that do not operate sustainably can face legal problems, fines and reputational damage. A Due Diligence study focusing on sustainability can identify these potential risks early and these can be included in warranty provisions. - Long-term performance and value creation:
Sustainability is strongly linked to the long-term performance of a business. Businesses that operate sustainably are often better able to create long-term value. They can use resources more efficiently, drive innovation and build better relationships with stakeholders, resulting in a more stable and resilient business. - Market position and competitive advantage:
Consumers, investors and partners increasingly value sustainability. Businesses that can demonstrate that they operate sustainably can distinguish themselves from their competitors and gain a preferred position among conscious consumers and investors.
In short, sustainability as an integral part during the due diligence process is no longer optional, but a necessity for forward-looking businesses. By making sustainability central to due diligence, the impact can be factored into the determination of the purchase price and the potential risks can be included in the warranty provisions.
