ESG tech sector M&A momentum on the rise as regulators and investors demand robust reporting, reveals Hampleton Partners

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ESG tech sector M&A momentum on the rise as regulators and investors demand robust reporting, reveals Hampleton Partners

Tue, 08/23/2022 - 09:58
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93 M&A deals globally target ESG firms in the first half of 2022

London, UK – 23 August 2022. The Environmental, Social & Governance Technology M&A Market Report from Hampleton Partners, the international M&A and corporate finance advisory firm for technology companies, reveals that the first half of 2022 saw 93 deals globally target an ESG firm, a 173 per cent increase on 1H2019 numbers.

This deal momentum comes in the wake of the European Green Deal, the SEC proposal for a new climate disclosure rule and the COP26 conference creation of the International Sustainability Standards Board (ISSB) piling on the pressure for companies to provide an accounting of the environmental risks they face, and the measures they’re taking in response.

Beyond safeguarding against legal missteps, ESG reporting also sets the tone for investing.

ESG is now linked to longer term performance, and can provide opportunities for cost savings, revenue generation and risk mitigation. Stock exchanges, financial regulators, lenders and asset managers are making it part of how they invest, but only one third of investors[1], on average, think the quality of the reporting they’re seeing is good enough.

Lolita White, senior analyst, Hampleton Partners, said: “While everything seems to point to the advent of a new age of regulatory scrutiny and corporate responsibility in the race to net zero and other goals, businesses’ ESG reporting is not yet up to scratch.

“There is an urgent need for companies to improve their use of ESG tech to support the real-time recording, analysis, reporting and visibility of their ESG data. They need to ensure their decisions about why, where and how to manage ESG risks, which can have a material effect on business and share-price performance, are robust.

“That’s why we’re seeing increasing numbers of software and services firms specialising in facilitating ESG reporting capabilities, garnering interest as M&A targets.”

Hampleton’s research logged 52 deals in the Enterprise Software and software as a service (SaaS) segment in the first half of 2022, more than doubling the number of deals closed in the same period in 2019.

ESG deal valuations and multiples

Looking at valuations across all ESG M&A targeting software, services or technology solutions, the trailing five year median revenue has stood at 2.7x, with 50 per cent of all deals announced being in the 0.8x to 6.7x range. The lowest was 0.1x, while the highest was 29.0x.

The trailing five year median EBITDA multiple was 13.6x, with 50% of all deals announced in the 9.5x to 19.4x range. The lowest was 2.1x, while the highest was 74.5x.

Largest ESG deals 2022

Blackbaud Inc. bought EVERFI Inc for $754m - social impact e-learning SaaS

Apax Partners LLP bought Alcumus Group Ltd for $813m - risk and compliance management SaaS

Top acquirers of ESG companies - past 30 months

The four top acquirers of ESG companies over the past 30 months and their three most recent acquisitions are:

Diligent - Insignia, Accuvio, Steele

accenture - Akzente, Greenfish, Avieco

EcoOnline - StaySafe, Biome Environmental, Nordic Port

Ideagen - CompliSpace, Ai XPRT, Qualtrax

The future of ESG technology M&A

Lolita White continued: “Beyond M&A, there is increasing conversation around the use and usefulness of ESG reporting. Some criticise ESG as a public relations move, or even a means to cash in on the higher motives of customers, investors, or employees.

“Far from negating the case for rigorous reporting, we believe that these debates will amplify the need for accurate and robust disclosure, thus spurring more active regulation with increasingly granular requirements. In turn, this will open many doors for ESG software and services providers helping customers navigate the ever changing ESG landscape.”

Hampleton Partners’ ESG M&A Market Report Content

Hampleton’s Environmental, Social & Governance Technology M&A Market Report 2H2022 investigates some of the transactions that have targeted firms specialising in ESG capabilities in the past five years, with a focus on software; outsourced services and consulting; and technology solutions more broadly. It explores some of the key transactions, valuations and trends across the sector.

Download the full Hampleton Partners’ Environmental, Social & Governance Technology M&A Market Report 2H2022.

[1] PWC Global Investors Survey, October 2021