M&A activity contributes to positive environmental performance, study reveals

A successful merger and acquisition (M&A) deal improves a firm’s environmental footprint, a major new study has revealed.

The report, published by the M&A Research Centre at Cass Business School, explores the benefits of structural changes to a business and the wider impact M&A has on society.

The major commercial benefits of M&A deals have been well documented, which include the ability to maximise value, pool together resources and streamline operations.

However, the wider, ethical impact of M&As has rarely been considered – until now.

The new study used a large sample of acquisition deals from the Thomson Reuters Securities Data Company (SDC) index, looking at how the environmental performance of a company changes before and after an M&A deal.

It found that, on average, acquirers have a higher standard of environmental performance than their targets. After a successful deal, these ethical values often propagate throughout the target firm. But perhaps surprisingly, acquirers generally have an improvement in their performance in the post-deal period too compared to their respective pre-deal standard.

The study also found that “better post-deal acquirer financial performance contributes positively to changes in environmental scores”. This demonstrates the importance of having economic resources for making environmental commitments, the researchers say.

Commenting on the study, Lead author Dr Zhenyi Huang said the report “comes at a time of increasing awareness from both government and society about the importance of environmental issues”.

“Deal managers should make an effort to learn the skills required to deliver effective allocation and utilisation of pooled resources so any financial values created can contribute more efficiently to a firm’s environmental performance,” she said.

“Our study also recommends that firms should manage their environmental policies more effectively alongside other corporate and financial decisions, such as debt policy and cash holdings, because those factors do influence each other.”

A full copy of the report, entitled Green Business: The Environmental Impact of M&A, can be downloaded here.