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Global business succession is more than just internationalization
For a long time, business succession was primarily a local issue: buyers and sellers were based in the same region, sometimes knew each other personally, and the legal framework was straightforward. However, with the increasing globalization of capital flows, succession models, and investor interests, the proportion of international M&A transactions in succession—so-called cross-border deals—is also growing.
What initially sounds like an expansion of the playing field brings with it new complexities: differences in tax law, cultural divergences in negotiation styles, and regulatory hurdles make international succession projects a challenging undertaking. One aspect in particular is becoming increasingly important and is often underestimated: ESG factors as deal-breakers or levers for success.
ESG: From a “nice-to-have” to a critical benchmark
Environmental, Social, Governance
What was long considered a buzzword has now become an integral part of due diligence. At the very least since even mid-sized companies have been required to comply with EU regulations—such as the Corporate Sustainability Reporting Directive (CSRD) or the Supply Chain Due Diligence Act—across their supply chains, a superficial review is no longer sufficient.
International buyers—whether strategic investors, private equity firms, or family offices—are increasingly imposing ESG-specific requirements on acquisition targets. The focus ranges from carbon footprints to labor standards and governance structures. Sellers who are unprepared in this regard risk not only valuation discounts but also the complete breakdown of negotiations.
Case Study: Sustainability Shortcomings as a Deal-Breaker
A family-run machinery manufacturer in Baden-Württemberg was set to be sold to a Canadian family office. The financial performance was strong, but the due diligence revealed that the company had no CO₂ tracking system in place, the majority of its vehicle fleet was not electric, and there were no policies regarding occupational safety or diversity.
The result: The buyer classified the company as “not sustainable.” Despite its economic appeal, the deal fell through, and a year later—after implementing ESG improvements—the seller had to search for a buyer again under significantly less favorable terms.
Cross-Border = ESG²: Why Cross-Border Deals Are Twice as Sensitive
In cross-border M&A processes, ESG issues are compounded by legal and cultural differences. Here are three real-world examples:
• Environmental standards: A buyer from Scandinavia expects detailed sustainability metrics; a German SME without a structured carbon footprint appears unprofessional.
• Governance: Anglo-Saxon investors expect documented decision-making processes and compliance structures; a patriarchal management structure is off-putting.
• Social: French buyers value equality and employee participation; the absence of works councils and male-dominated workplaces tend to be off-putting.
Deal Readiness: ESG Begins Before the Sales Process
What does this mean for sellers? Today, they must not only prepare their financial statements and strategy but also present a sustainable narrative. ESG fitness has become a calling card and proof of future viability.
Specifically, this means:
• Early ESG assessment: What risks exist? What opportunities remain untapped?
• Structured sustainability data: Key metrics, reports, standards—professionally documented.
• An ESG narrative as part of the investment case: Why is this company resilient, responsible, and attractive to the next generation of owners?
Case Study: Success Through ESG Readiness
A manufacturer of packaging technology in North Rhine-Westphalia had already established an ESG scoring system prior to the sale process. The results were not only communicated in a sustainability report but also integrated into the sales documentation. Result: A U.S. private equity investor came on board at an above-average valuation. The ESG profile was viewed as a strategic competitive advantage.
Checklist: ESG-Ready for Cross-Border Deals
• ESG Quick Check: Are there already reliable metrics (CO₂, diversity, governance)?
• Gap Analysis: Where are there shortcomings compared to market standards?
• Reporting Structure: Are there documented ESG reports or sustainability goals?
• Supply Chain: Have suppliers been screened against ESG criteria?
• International Standards: Is the company prepared for foreign ESG expectations?
• Communication: Is ESG actively presented as part of the company’s narrative?
• Integration into the M&A process: Is ESG systematically factored into teasers and information memoranda?
Conclusion: ESG Is the New Trust
Cross-border succession offers opportunities for sellers, buyers, and—not least—for the further development of business models, but it requires more than traditional M&A expertise. Those who fail to factor in ESG risk setbacks. Those who actively integrate ESG increase their enterprise value and open themselves up to a new class of investors.
Especially among small and medium-sized enterprises, it’s time for a shift in perspective: Sustainability is not a stumbling block, but rather the foundation for successful cross-border transfers.
