Regulation, tax and ESG reshape M&A strategy and deal execution
Professional advisors are playing an increasingly important role in deal process as the regulatory environment becomes increasingly complex.
Regulatory requirements, evolving tax frameworks and environmental, social and governance (ESG) considerations are now core elements of transaction strategy rather than afterthoughts. In this increasingly complex deal environment, trusted specialist advisory expertise is more important than ever.
Increased complexity in dealmaking has been partly driven by the significant expansion of tax legislation and broader regulatory oversight in recent years, according to Focus Capital Partners tax partner David Brophy.
“As part of an international push to curb base erosion and profit shifting, and to enhance tax anti-avoidance rules, Ireland has introduced and developed complex regimes such as interest limitation rules, transfer pricing requirements, anti-hybrid rules and Pillar Two,” he notes.
“These frameworks are highly technical and continuously evolving, inevitably adding additional layers of analysis and structuring considerations to any deal,” Brophy continues.
“As a result, transactions now require a broader range of specialists, increasing both the number of advisers involved and the importance of early-stage planning.”
BDO Ireland’s head of deal advisory Katharine Byrne points out that regulation, tax and ESG now shape transactions from the earliest stage.
“Each can influence valuation, timing, structure and ultimately whether a deal proceeds at all. Increased scrutiny from regulators such as CCPC [Competition and Consumer Protection Commission] means that parties need to appoint advisors at the outset who can clearly assess the proposed transaction and advise them on reporting requirements both mandatory and voluntary. More complex cross-border tax considerations and growing expectations around sustainability governance and reporting have also made transaction planning materially more demanding.”
The tax environment requires new thinking and approaches. “Evolving global and domestic tax frameworks have made deal structuring more complex and less reliant on traditional tax structuring models,” explains PwC Ireland tax partner Nicola Quinn. “Relatively recent developments such as the OECD’s 15 per cent global minimum tax, expanded anti-avoidance rules along with rapidly changing legislation and revenue authority practices are contributing to such complexity.”
At the same time, stricter rules constrain the use of debt and intra-group financing, she adds. “Tax laws are evolving quickly across jurisdictions with differing interpretations, increasing the risk of retroactive tax exposure and making outcomes less predictable. As a result, it is harder to forecast post-deal cash flows, and transactions increasingly require advanced tax modelling, built-in protections such as indemnities and price adjustments, and a stronger emphasis on achieving tax certainty through careful planning.”
While there may have been some pushback against the overall sustainability agenda, particularly on the other side of the Atlantic, ESG considerations still play a significant role across the M&A process, influencing target selection, valuation, due diligence, financing and post-deal integration.
“Buyers, investors and lenders increasingly view ESG factors as indicators of long-term resilience and risk management, leading to greater scrutiny of areas such as carbon exposure, supply chains, workforce practices and governance,” says Brophy.
“Weak ESG performance can impact valuation, deal terms or even transaction viability, while strong credentials can enhance access to capital and support investor appetite. Overall, ESG is increasingly seen not just as a compliance issue, but as a driver of risk assessment and long-term value creation.”
PwC Ireland deals director Ray Egan agrees: “ESG remains an important consideration in M&A, particularly for institutional investors with formal reporting obligations and for businesses operating in regulated or consumer facing sectors. While it typically features as part of standard due diligence, commercial fundamentals such as earnings quality and growth potential continue to dominate during the dealmaking process.”
ESG can also be a deal driver, according to EY Ireland corporate finance partner Ronan Murray who says it can be a factor for private equity buyers looking to add to portfolios with strong ESG credentials. “It continues to show up as an underlying risk as well,” he says. “But European buyers are more interested in ESG than US buyers and it is not as prominent a diligence matter as it was.”
Digital regulation can also be a deal driver, he adds. “Indigenous Irish tech companies can become targets for global investors due to digital regulation. Artificial intelligence (AI) is also emerging as a driver of activity, particularly for capability-led transactions where buyers are looking for access to technology and talent. AI is complex and it can sometimes be faster to acquire than to build internally.”
In this complex environment with a widening range of regulatory, taxation and other factors to take into consideration, professional advisors are playing an increasingly important role in deal process.
“One of the most important aspects of that role is identifying technical risks and practical deal issues at an early stage,” says Brophy. “This may involve highlighting tax or legal risks inherent in a proposed structure, identifying regulatory or ESG-related concerns, or recognising where a client’s commercial or financial objectives do not align with the transaction opportunity as initially presented.
“An experienced advisory team can coordinate across multiple workstreams, guide negotiations and address issues before they escalate, helping to avoid unnecessary cost, delay or execution risk. What might have been a minor negotiating point at the start of a deal process, might become a significant, potentially deal-breaking issue at a later stage.”
Byrne concurs saying: “Experienced advisers bring far more than technical support: they help identify risks early, test assumptions, coordinate workstreams and give decision-makers the confidence to move at pace in a complex environment. Early engagement with advisors helps management teams convert their strategic ambition into a deal that is practical, compliant and capable of delivering long-term value.”
Deciding on what specialists to take on board to support the process is a different question. “Companies should take a proportionate approach to advisors, reflecting the size, complexity and nature of the transaction,” Egan advises.
“In most meaningful deals, corporate finance, due diligence, legal and tax advice are all essential, with property, debt, ESG, pensions, insurance or regulatory specialists added where those issues are material. The best approach is to identify the key value drivers and risks early, then build the advisor team around them rather than adopting a one-size-fits-all approach.”
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