Despite a slowdown experienced in the Greek M&A sector in 2023, primarily attributed to factors such as inflation, increased interest rates, pervasive geopolitical instabilities, and diverging valuation perspectives between sellers and buyers, the ongoing year of 2024 has seen a notable upsurge in transaction activity. This upward trend underscores the robustness and resilience of the market, which is not only recovering but is also attracting heightened attention from international investors.
The current M&A landscape in Greece is strongly favored by a multitude of factors, including the country’s improving economic stability and promising growth prospects, the ongoing regulatory reforms designed to streamline procedures and enhance transparency, such as the new Law 5069/2023 on the operation of data centers and the ongoing tax incentives related to cross-border transformations, as well as a number of privatization and digital transformation initiatives in the energy, tourism, and infrastructure sectors and, last but not least, a growing emphasis on Environmental, Social, and Governance (ESG) considerations in business practices.
In the M&A arena, Greek companies are progressively directing their efforts toward elevating their corporate governance protocols in order to comply with global benchmarks, ethical business standards, and legal requirements. In this context, ESG considerations are assuming an increasingly significant role in corporate strategic planning within the Greek business landscape. Businesses are taking proactive measures to integrate ESG criteria into their investment strategies, deal negotiations, operational frameworks, and post-merger integration plans to address environmental challenges, fulfill social obligations, and maintain robust governance structures. This paradigm shift is driven by a growing recognition of the impact of ESG risks on financial performance, corporate reputation, and stakeholder engagement.
It is more than evident that institutional investors, private equity firms, and other financial institutions are placing a greater emphasis on ESG factors when assessing investment opportunities in the context of M&A transactions, as they seek to evaluate not only financial metrics but also the non-financial aspects that could impact the long-term sustainability of a target company. On their end, companies seeking investment or partnerships with said investors may need to demonstrate their commitment to ESG principles and clarify how they address ESG risks and opportunities.
ESG due diligence is, therefore, quickly becoming a standard and essential tool in corporate and M&A transactions, helping to identify potential risks and liabilities associated with a target company’s environmental, social, and governance practices, as well as opportunities to create value through improved sustainability practices, enhanced stakeholder relationships, and operational efficiencies. In addition, conducting ESG due diligence helps ensure that the transaction aligns with responsible business practices and avoids reputational damage, legal challenges, or financial penalties that could arise from environmental or social controversies or non-compliance with existing and upcoming regulatory requirements. Finally, understanding the target company’s ESG performance during the due diligence process enables investors to develop integration plans that address any ESG-related challenges and capitalize on opportunities for improvement, thereby contributing to the overall success of the post-merger integration process.
It is true that the national regulatory framework on ESG reporting is on the more stringent side, enabling regulators, investors, and other stakeholders to scrutinize M&A transactions in order to effectively monitor compliance with industry standards and promote transparency on aspects such as carbon emissions, inclusivity, and board composition. Through innovation, sustainability, and responsible governance, Greek companies are in a strong position to capitalize on emerging opportunities and overcome potential challenges.
As Greece progresses toward financial stability and growth, embracing ESG principles, promoting digital transformation, and nurturing strategic partnerships will be critical to unlocking the full potential of the Greek corporate and M&A market in 2024 and beyond. Backed by the Greek government’s commitment to cultivating a business-friendly ecosystem and the increasing awareness of ESG principles among industry players, Greece is set to attract further investment, stimulate innovation, and foster sustainable growth in the corporate/M&A sector.
By Mika Lalaouni, Partner, Drakopoulos
This article was originally published in Issue 11.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
