The quest for M&A green value

Whether seeking a green startup target, or simply viewing sustainability as sine qua non for any deal, private equity is enshrining ESG alongside virtual dealmaking as part of the new normal of operations.

From a nice extra, the pandemic year cemented ESG factors as a “must-have” that determines long-term value creation. It means that 2021 is shaping up into what KPMG calls a “breakout year” for ESG in venture capital.

Amid the enthusiasm, the global investment community is also experiencing a new maturity in the ESG landscape, with MSCI seeing both “hype and scepticism” giving way to “a more nuanced understanding.”

Gone are the days when anything green turned to gold. Investors are learning to become more discriminating in ESG picks, especially as 2021 promises to bring in a raft of new regulatory standards and policy benchmarks.

In the green arena, moreover, the supply of stellar targets is shrinking, even as demand rises. “Barring dramatic policy and technological breakthroughs and corporate action,” MSCI says in a report, “the availability of Paris-aligned investment opportunities will become increasingly limited.”

Consensus is growing that allocators of capital must leverage sophisticated new digital solutions to assess long-term value in ESG assets. According to Bain & Company, the Covid-19 year that gave ESG “a prominent place among M&A criteria” also brought about requirements for “the extension of target screening, the development of new diligence capabilities, as well as the use of new sources of data.”

These new data-driven approaches promise to give unprecedented clarity in what has so far been a nebulous field: “From concerns about overvaluation to why ESG ratings differ,” MSCI says, “the tools and analysis now exist for savvy investors to cut through conjecture and act on the evidence.”

A one-stop shop for evaluating ESG strength

The new paradigm of AI-driven deal-tech can offer important answers in ESG dealmaking. It empowers acquirers seeking data-driven insight, as well as green innovators striving to prove their sustainability mettle. Ansarada seeks to provide a one-stop shop for fast and judicious assessment in the world’s most important investment narrative.

“There’s been waste and inefficiency in this space – because no one really had a clear view of what to invest in. We help sort the wheat from chaff,” says Stuart Clout, chief revenue officer, Ansarada. “Ansarada provides the technology that enables the seller side to present their case, and the bidder side to quickly assess the relevant factors.”

Tailor-made approaches are essential in a complex investment arena. “In green industry, every sector, be it battery storage or wind power, has its nuances and licencses and peculiarities and things that investors want to see,” says Sam Riley, chief executive, Ansarada. “And they have different regulatory compliance obligations. So architecting that information is critical. That's a key thing we offer. The ability to customise exactly the information you need.”

Don’t forget the “G” in ESG

Understandably, it’s environmental and social factors that get top billing in discussions of ESG. Shrinking ice caps and Black Lives Matter inspire powerful calls to action. Yet it’s important to grasp how the “G” is often the critical window into understanding a company’s overall ESG performance.

“Governance sits on top of everything. It allows you to have visibility over and inspect those critical environmental and social activities,” says Riley. “Ironically, people tend to make governance the last mile. If you make governance the first mile, everything else is more consistent, and the quality of the deal improves.”

Ansarada’s new Ansarada Deals platform provides AI-enabled management and intelligence across the deal lifecycle, enabling real-time insight into a company’s inner workings for the acquirer, and opportunity for sellers to establish enterprise credibility.

“In ESG, the biggest strength we offer is the G part,” says Riley. “Increasingly, what's going to happen when companies are assessed on ESG, is being asked ‘what technology are you using to ensure that you have the appropriate governance controls in place?’ We’re there to provide instant visibility on these critical factors.”

Fostering green venture shoots

Amid the boom in green dealmaking, there is often a vast knowledge gap between venture capital and promising startups. Innovators with a big idea are often let down by ignorance in the lexicon and methodologies of governance and due diligence.

Ansarada helps to bridge the divide with products that empower startups with dealmaking knowledge. For example, Ansarada’s Deal Workflow provides digital checklists and templates for companies to get investment ready.

“With Deal Workflow, we can help the startup stand out and be noticed, because they look professional and ready,” says Clout. “That goes a long way in terms of credibility.” 

And the story with Ansarada often only begins once the deal is clinched. Ansarada Board, for example, can help startups prepare for tough board questions and strengthen compliance far into the future.

“Once they’re invested in, they need to start to govern their organization, which will include reporting back to the funds that have given them money,” says Clout. “So our Board product enables them to run their board in a far more transparent and better governed way.”

“It’s one of countless ways in which we see ourselves going on the whole journey with our customers.”