Sustainability reporting bolsters target company’s ESG narrative ahead of private equity deal.

Environmental, social and governance performance, or ESG, continues to demonstrate its relevance in middle market private equity deals by driving value creation beyond revenue and EBITDA growth to account for other factors such as market positioning.

One portfolio company with sustainability at the core of its business model needed help shaping the narrative for key stakeholders and a potential buyer.

BBB Industries LLC has been a pioneer in the sustainable manufacturing of automotive parts since the company was founded in 1987. Today, BBB does business in 64 countries through five divisions, with multiple sustainable manufacturing facilities and distribution centers located throughout North America and Europe.

The company’s newest division, TerrePower, brings its sustainable manufacturing process to the electric vehicle and renewable energy sectors. Through TerrePower, electric vehicle batteries that fail and degrade over time can now be given a second, and sometimes third, life in a battery electric vehicle or in stationary storage.

With its business model focused on extending the useful life of critical automotive parts—making them more environmentally friendly by maintaining their potential value and keeping them out of the waste stream—BBB’s management team knew the company had a strong ESG narrative; the team just needed to bolster sustainability messaging and metrics for external reporting.

Through a relationship at the fund level, BBB’s management team was introduced to Anthony DeCandido, a partner in RSM US LLP’s ESG advisory services practice, who explained the benefits of ESG reporting.

“Middle market portfolio companies that integrate sustainability considerations into their business model stand to gain a significant advantage in creating value and opportunity in many ways,” says DeCandido, who also serves as a financial services senior analyst at the firm. “There is ample evidence to suggest that demonstrating meaningful effort and progress toward ESG goals correlates to a company’s valuation and long-term market value.”

BBB engaged RSM to perform an environmental Rapid Assessment® and data analysis, with several goals:

• Evaluate the company’s ESG maturity and provide recommendations to reach the next level
• Establish ESG frameworks and metrics for sustainability reporting
• Execute an industry benchmarking exercise and identify key stakeholders
   

“The assessment revealed sustainability has been a part of BBB’s DNA since it was founded; they just needed to take credit for the ESG initiatives that were already in place through effective reporting,” says Trish Beltran, a manager in RSM’s ESG advisory services practice who led the engagement.

Demonstrating its sustainability helped sharpen the company’s competitive edge as an acquisition opportunity for investors. Moreover, maintaining an ESG program and reporting framework underpinned by data aided the due diligence process. By taking a strong position to exemplify the ESG attributes of the organization, BBB has set the standard for what ESG looks like in the automotive aftermarket.

As they say, the proof is in the pudding. An investment firm with over $70 billion in assets under management acquired majority ownership in BBB, citing its sustainability efforts as a key deal consideration.