Sehrish Siddiqui and Davis Mello Outline Considerations for ESG Due Diligence in Mid-Market Companies

December 3, 2021
Mergers & Acquisitions

Bass, Berry & Sims attorneys Sehrish Siddiqui and Davis Mello authored an article for Mergers & Acquisitions discussing the expanding scope of due diligence in M&A to address factors related to environmental, social and governance (ESG) matters. As the authors note, Private Equity International’s LP Perspectives 2021 study indicated that ESG factors are gaining greater weight in due diligence, with 88% of investors taking a manager’s consideration of ESG factors into account while conducting due diligence, making this a crucial factor to move deals across the finish line.

“This increased focus on ESG presents a challenge for the middle market, where acquisition targets may not have robust internal governance and compliance infrastructure or the resources to dedicate to ESG-related matters,” the authors said. “Additionally, PE firms face a unique mandate to produce substantial returns quickly, leaving little time to address a broad range of ESG matters in addition to pursuing growth opportunities and building out more basic compliance functions.”

Sehrish and Davis add, “Even for those targets that have dedicated significant resources to certain ESG initiatives, ESG diligence findings may be difficult to evaluate without clear criteria to measure against.” However, some standard-setters have begun consolidating industry-specific frameworks for evaluation.

The full article, “How to Understand ESG Due Diligence in Mid-Market Companies,” was published by Mergers & Acquisitions on December 1 and is available online.