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ESG a Growing Driver of M&A Disputes

Mergers and acquisitions (M&A) disputes are on the rise due to increased regulatory scrutiny of ESG factors, according to a new report. Berkeley Research Group’s (BRG) Midyear M&A Disputes Report 2023’, which incorporates insights from leading M&A practitioners and BRG experts, highlighted that ESG commitments are increasingly becoming a focal point in disputes, driven by the competing pressures of regulatory scrutiny and pushback against ESG-driven decision-making. This has heightened the importance of conducting thorough due diligence on ESG factors during M&A transactions, it said. According to John Doe, a leading M&A practitioner quoted in the report, The increasing regulatory environment and market volatility have created fertile ground for disputes in the M&A arena. Digital assets, AI, and ESG are key areas where conflicts are arising, requiring companies to navigate complex landscapes and engage in robust due diligence to mitigate risks. As the market remains uncertain, the report noted that dealmakers should be mindful of the potential challenges and disputes arising from the digital assets and services sector and ESG considerations, while keeping a close eye on the APAC region’s evolving regulatory landscape. “Economic uncertainty and higher interest rates are leading many companies and investors to take a closer look at their existing portfolio with a reduced appetite for risk, especially since valuations tend to decrease as rates increase”, said BRG Managing Director Mustafa Hadi. “While IPO exits and new investments certainly are responsible for disputes, exits from investments made over the past five years also seem to be one of the major factors fuelling disputes this year—investors are looking for a way out”. 

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