How a digital due diligence can strengthen M&A activity
By Lee Roden
The Whispr Group Insights Blog has previously explained how data insights can improve communications, marketing, product development and more. But one of the most powerful possibilities is to inform investment decisions, providing a depth of understanding when weighing up an acquisition and a roadmap to help try to increase the value of an investment after a purchase has taken place.
Today we asked Whispr Group Professional Services Insights Manager Steven Luna to break down just what exactly can be learned from a Digital Due Diligence as we call it, and why it’s a go-to product for our M&A customers making decisions where huge sums of money hang in the balance.
What separates a true Digital Due Diligence from some of the more basic digital analysis products on the market?
Tools give you data, but you have to learn how to use the tool and become an expert with it. You’re looking for a needle in a haystack of a lot of data out there, and if you don’t know how to clean that up, you’re going to get a lot of junk in. Junk in is also junk out, of course.
The difference with us too is we don’t just have access to one tool, but a whole range built into our Insights Platform, and can triangulate any data point we see. We can combine a measure of Share of Voice growth, say, with web traffic analytics, to chart how Share of Search is growing over the same time. Typically with Share of Search if you see it going up or down that tells you if you can expect headwinds or tailwinds, and triangulating that with the other data paints a much clearer picture.
Having multiple tools, adding our experts into the equation – who are able to cut through the clutter – and our experience where we know how to set the right scope and methodology for the data to answer the question being asked. That’s not something that buying a simple tool can get close to.
Our M&A customers usually have an idea of what they’re trying to achieve, but need data-based evidence to support it. How does a Digital Due Diligence help them prove – or in some cases disprove – their theories?
Typically a customer will have a hypothesis of their target company’s position: they’re growing 50 percent YoY for example, but their market is a niche where market reports or access to financial data isn’t available. So how can we from the outside-in, find alternative data points to get them comfortable with the idea that they maybe are growing 50 percent YoY?
An example could be where we’ve done a Digital Due Diligence of an e-commerce company, and found that, based on the new products they’ve launched, they’ve really increased online visibility around the same time as their revenue has also increased. In other words, you find a correlation to give comfort around the possibility that theory is true. The strongest approach is to have an idea of what you want to prove or disprove, and we can then use the tools and design an analysis to answer your most pressing questions. Depending on the company or PE firm those questions vary, so it’s not a cookie-cutter analysis either.
In contrast to e-commerce, if you’re dealing with a healthcare company working with diagnostics, their audience are not consumers in the traditional sense, but rather, academics and researchers. In the context of a possible acquisition you want to know what those researchers think and how they’re performing in that regard, as that’s where a possible cause of value depreciation could occur.
On occasion someone doesn’t have a clear theory. Maybe a PE firm doesn’t want to hire a management consultant and instead relies on us to carry out an industry analysis, benchmarking the sentiment towards a company compared to competitors. There, we can pinpoint the positioning: what development has occurred over time? What do people really care about and why? Are there any potential red flags we can find that would prevent them from making the investment?
We’re ultimately not going to definitively tell them to make the investment or not because we can’t make a prediction of how value will look in five years. But let’s say we find there’s strong momentum for the target, everyone seems to like the brand, we can understand where the momentum is going and likely reasons why, why the brand and its products are perceived the way they are. Then, it’s up to the client how they want to look at that nuance: a red flag or an opportunity?
They can then use our report, if they acquire the company, to help add value down the line once the asset becomes a portfolio company for the PE. Our work can live on beyond the investment decision itself by helping the client create value for their new investment.
Even if every analysis is different, in general, what are some of the key aspects you should be using a Digital Due Diligence to look at when assessing a company?
What we’re really good at is using social listening tools and expertise to see development over time: the data is there and it’s unprompted, unlike a survey. So one really powerful metric is unprompted brand awareness: how often is something related to a brand mentioned, compared to a competitor set? Who are the major players? What’s the Share of Voice breakdown and development over time?
One other actionable metric is audience sentiment: how do people perceive the brand, positively or negatively, and why? How do they perceive the product or service? Has the brand done anything that makes people think they’re a bad company and to steer clear of them – which could even turn into a hiring issue, should the company be acquired? Did they have products recalled for causing harm?
It’s also great at uncovering KPCs. Why are people buying the brand’s product? Management will tell you ‘people buy our product because of X,Y,Z’, but is that truly the case?
We can do that by looking at the topics when people talk about the brand or service: is a product quality frequently mentioned? One example was a rug company, where the KPCs turned out to be what the management thought they were except there was one which they didn’t even know or think about, which is that parents were buying their rugs for the softness for their kids or even for their pets. So there’s a marketing opportunity there, to appeal to an audience who wants to purchase a product based on that criteria.
And finally, competitive intelligence is another fundamental area it can shine light on. Seeing who your brand is being compared to and in what context. Who are your threats? In each market the context can change, and it’s important to understand that.
Want to know how Whispr Group’s Professional Services teams can help you to inform investment decisions? Get in touch below.