Diversity helps strengthen value creation

Today's leading dealmakers see inclusion, diversity and equity (IDE) as a key piece of the value creation equation. And they are embedding IDE considerations into their dealmaking process.

The rationale is fairly clear. Diverse organizations tend to spot new trends faster, react with greater agility and generate more value. According to research by the International Finance Corporation, venture capital and private equity funds that boast gender-balanced teams tend to perform 10 to 20 percent better than their non-balanced competitors¹.

Data also indicates that diverse organizations attract more talent. One survey of 18-35-year-olds found that around 40 percent of this cohort would switch jobs to be part of a more inclusive culture². At the same time, KPMG professionals extensive experience advising dealmakers suggests that culture clashes are among the top reasons that deals fail.

Not surprisingly, therefore, IDE is rapidly moving up the dealmakers' agenda. A recent survey of CEOs conducted by KPMG International found that nearly 70 percent said their investment decisions were influenced by their social agenda at least some of the time³. KPMG professionals conversations with dealmakers indicates that IDE data is increasingly being used by investors to calculate valuations and future value creation opportunities.

On the buy-side, many dealmakers are formally adding IDE into their due diligence - either as a stand-alone activity or as part of their wider ESG due diligence processes. They aren't just looking for balance in the boardroom - they want to see evidence of true diversity across the organization. Where gaps exist, they expect to see clear and practical strategies to address them.

More sophisticated buy-side players - particularly venture capital and private equity managers - are going a step further to understand how diversity data might influence valuations. They are applying discounts on organizations that demonstrate poor inclusion, diversity and equity positions. And they are thinking about how leadership changes and investments into IDE might help them create value from their investments over the long term.

At the same time, many buy-side organizations are starting to focus on their own IDE data and gaps. They know gender-balanced investment teams tend to perform better than their peers and they are keen to attract the best and brightest minds to their organizations. As such, many deal functions are implementing strategies to try to bring greater diversity across their front and back office.

Sell-side dealmakers are taking note and sharpening their focus on their IDE story. KPMG's view of the market suggests they are making sure that their IDE data is reliable, robust and relevant while, at the same time, critically challenging their data with the aim of ensuring that it stands up to scrutiny during due diligence processes. And they are ensuring they have practical strategies to bridge any gaps they find.

It's not just IDE data that they are talking up. Many sell-side dealmakers become increasingly sophisticated at explaining how their investments - in capabilities, talent, technology and processes - help enhance long-term diversity and inclusion. They are making the link between leadership style and culture. They are showing how technology investments are helping make the workplace more inclusive, accessible, and equal.

They are also ensuring they work with advisors who share their values and commitment to diversity. I'm aware of multiple instances where KPMG firms have been appointed as a company's deal advisors in part due to the KPMG global networks' commitment and progress on our diversity agenda. They know that the diversity of their deal advisory team can have a direct impact on their chances of success.

At KPMG, we believe a robust and practical IDE strategy creates value - for companies, for employees and for investors. KPMG firms are deeply committed to helping clients deliver on their IDE goals. And we understand the link between IDE and dealmaking. Contact a KPMG deal advisory professional today to find out how we can help your organization.