Diversity and dealmaking - Putting inclusion at the heart of M&A

Corporations are putting diversity and inclusion at the centre of their acquisition strategies - should you do the same?

Instinct may tell us that a diverse and inclusive workplace is more likely to be a successful, functional one. But there is more than just instinct to inform us. Recent research shows that workplaces that are diverse are more likely to be profitable. In light of this, and the growing desire to ensure everyone has equal opportunities, many larger businesses are starting to include diversity and inclusion in their due diligence processes when buying businesses.

Here, we look at this fresh focus on diversity and inclusion (D&I) a little more closely and ask whether deals of all sizes will be more successful if diversity and inclusion are taken into account and actively considered at the point a deal is done.

What is diversity and inclusion?

It’s helpful to define what we mean by diversity and inclusion before we continue. Diversity refers to the range of different personal identities represented in a workplace. Personal identities can refer to race, sexuality, gender, nationality, socio-economic background, age or religion, for example.

Inclusion is about how people feel as part of a team and as part of a workplace. An inclusive workplace will ensure that every single employee or contractor working for a business feels their voice is heard and that they have an equal sense of belonging, opportunity to progress and that decision makers and leadership teams display impartiality at all times.

Why is D&I important?

There’s been plenty of research in recent years to back up theories that more diverse workplaces perform better. For example, the Harvard Business Review undertook a large-scale piece of research in 2018, which consulted 1,700 companies in eight different countries around the world.

Firstly, they found that diversity had become a more important topic of consideration in 70% of the businesses they spoke to. Then, when they looked at how diversity levels linked to performance, particularly with regard to innovation, they found that higher levels of diversity resulted in businesses being more innovative and that this has a favourable impact on their financial performance.

Another study, this time by McKinsey, found that ethnically diverse businesses were 35% more likely to outperform their less diverse rivals, while gender-diverse businesses were 25% more likely to outperform.

However you look at it, it’s clear that ensuring you keep diversity at the forefront of HR strategy is a no-brainer when it comes to maximising financial performance.

There are also clear benefits in terms of staff morale, with inclusive workplaces delivering an enhanced working environment when compared to more homogenous workplaces.

There’s a growing voice arguing that diversity and inclusion can not be seen as a box-ticking exercise purely about boosting financial performance, Instead it’s about changing corporate culture for good, for the better and permanently. This involves listening to employees and allowing them to advise on how to improve workplaces from an inclusion perspective. It also involves training and awareness work to help remove some of the unconscious biases people can display.

There’s a long way to go before people of all identities feel equal and listened-to in workplaces, but all businesses can play a part in the journey - particularly those embarking on an acquisition.

What can be done at the due diligence stage?

Major corporations value cultural integration when they do a deal to buy or absorb another company. Taking steps to ensure smooth integration of cultures is an important, and challenging step for dealmakers. However, this stage is also highly important for the future success of a business post-acquisition or merger.

Microsoft’s HR manager, Liz Martin, explained to Willis Tower Watson how “When we acquire a company, we definitely look at what their D&I plans are, how we can integrate them into ours and how we can learn from them, but also how we can make sure that they're meeting our objectives.”

Johnson & Johnson’s HR Director, Michael Weber, explained: “We're opportunistic in diligence, based on the size, complexity and history of the company. For smaller companies we try to have a good idea of who the people are in the company and their makeup from a diversity perspective.”

Most business owners know how important recruitment and talent acquisition is to the success of a growing business. A recent survey by Glassdoor found that 76% of employees and people seeking jobs assess the diversity of a workplace before accepting job offers.

The brand new Confidence Index report from Vistage found that 91% of SME owners cited talent acquisition as important to their business over the coming 12 months. A renewed focus on diversity and inclusion is expected to play a large part in this process.

It’s clear that major corporations are using acquisition as an opportunity to improve their workforce diversity and smaller businesses can do the same. Here’s how:


D&I needs to be a primary concern when embarking on any deal to buy a business. If you pay due consideration to this factor from the beginning of the dealmaking process, it will be easier to ensure integration goes smoothly after the deal is done. It may even be sensible to assess a business in terms of its D&I strategy before agreeing a takeover. Do you really want to be lumbered with a business that has failed to take any steps to stimulate and protect diversity and inclusion?


Ask questions about the employees at your target business. Although privacy regulations may make this more difficult than it used to be, some business owners will be open about the make-up of a workforce, particularly if you express interest in diversity matters.


Enquire whether the target business has a D&I strategy in place and learn as much as you can about it. Does it fit with your own policies and procedures and can it enhance your existing approach?


Think about whether the elements of your target business’s D&I procedure fit with the elements of your own. Also look at the dynamics of the target workforce, compared with your own. Will it fit from a diversity and inclusions perspective?


Consider the level of recruitment that may need to take place in order to get a target business up to standard in terms of diversity and whether this is something you are willing to take on. Do you have the resources available to undertake this kind of recruitment project and are you prepared for it?

Post-deal, there’s yet more work to be done to ensure employee integration goes smoothly. Confidence among SME leadership teams is at an extremely high point at the moment with 74% expecting the overall economic situation in the UK to improve over the coming 12 months, according to Vistage.

To fully capitalise on this growth and move into the future positively, it’s clear that diversity and integration should be at the top of your priorities when looking to buy a business.

Share this article

Latest Businesses for Sale

---

---

---

View more businesses for sale