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Punching Out: Concerns About ESG Issues in PCB M&A

Recently, ESG issues have become more prominent in business as well as in M&A deals. ESG stands for environmental, social, and governance. Too bad it does not stand for “Eat something good,” but it can stand for improving operations and how stakeholders view the business.

Here are some of the factors that go into an ESG rating:

• Environmental: Emission of greenhouse gases, use of renewable energy, waste management, energy management, landfill diversion, recycling, water management, product energy efficiency, and materials
• Social: Community involvement, diversity, employee health and safety, human rights, product lifecycle management, employee development, and fair wages and benefits
• Governance: Openness on ESG issues, executive pay linked (in part) to ESG issues, supply chain integrity, ethics, gender composition on boards, etc.

The PCB industry has dealt with environmental issues before, so it’s not really anything new. Water and waste treatment regulations have been in place for many years and the standards continue to increase. Most PCB shops recycle scrap materials, and many have started recycling water and using solar panels. On a related note, conflict materials regulations have been passed down for some time and the industry has learned how to be compliant. The industry still can improve its environmental record, however. Aside from the environment, the focus on social and governance issues has stepped up recently, so business owners need to pay more attention. Being mindful of these issues can help the business succeed as well as help an M&A deal go more smoothly.

Why Be Concerned About ESG Issues?
Business owners may have already received questions from customers or employees about their policies on certain issues. If customers are concerned, then owners should definitely be concerned. Regarding employees, the industry needs to attract younger employees who are increasingly focused on the social values of the company they work for. It can certainly help with recruiting if your company is ranked locally as a “Best Employer.” Elon Musk may have recently called ESG a “scam,” but in the minds of many, ESG is for-real and here to stay. Most likely, even small companies will need to report their ESG policies and scores.

For M&A, more investors are looking to invest in companies that have high ESG ratings. Investors have a large say in public company and private equity management, and their influence is trending up. Many investors in private equity funds are insurance companies, endowments, wealthy families, etc., that have stakeholders who are concerned about ESG issues. Buyers will start looking at the cost of getting a seller’s company up to snuff on ESG issues, or the liability of acquiring a company that is far from being compliant, so it may start to affect deals. As a trend, ESG issues will become more critical going forward.

So, stop running the business like Archie Bunker: Plant a tree, sponsor a softball team, and put up a poster in the lunchroom. Done. If only it were that easy. There are no great guidelines for small manufacturers who are looking to improve their ESG scores. Most of the guidelines are focused on larger, public companies, however, there are many small and relatively inexpensive moves that owners can make:

• Ask employees for energy saving ideas
• Switch to LED lights and solar panels (there may be tax credits)
• Sponsor a community program, maybe one that is tech/manufacturing-related
• Pick a cause that is important to the owner and/or employees
• Wellness programs for employees
• Ask insurers for additional, low-cost programs/benefits
• Communicate ESG milestones and policies with employees, customers, and suppliers

In between rolling up your sleeves, fixing the etcher, and nailing down a major order with a customer, slowly start to improve your company’s ESG policies: it will pay off in more ways than you would think and is an important step in preparing for an eventual exit.

Tom Kastner is the president of GP Ventures, an investment banking firm focused on sell-side and buy-side transactions in the tech and electronics industries. GP Ventures has offices in Chicago and Tokyo, with five people in total. Tom Kastner is a registered representative of, and securities transactions are conducted through StillPoint Capital, LLC—a Tampa, Florida, member of FINRA and SIPC. StillPoint Capital is not affiliated with GP Ventures.