How Social Media Due Diligence Can Improve Investment Decisions
When assessing non-financial risk data as part of M&A due diligence, traditional checks currently pay little attention to investigating the online footprint of a target company. An organisation’s online activity, and indeed the online activity of its management teams, can provide valuable insight into reputation, culture, management personas and more.
With post-pandemic financial data difficult to trust, non-financial risks are likely to become increasingly significant as private equity and investment firms seek additional data points to supplement decision making.
Social media due diligence tools can be used to interrogate vast quantities of public online data, helping to identify potential business or personnel risks within the target company.
What social media due diligence tools can uncover
Contained within online public data is a wealth of previously untapped resources relating to both risk and opportunity. By combining natural language processing, AI and expert human analysis, risks can be identified that would not be uncovered using traditional due diligence processes.
When harnessed properly, this data can be used to provide a new dimension of analysis into non-financial risks and goes beyond the depth of insight provided by typical brand sentiment analysis.
Public perception can have a significant impact on the overall reputational health of an organisation, with online reviews granting consumers a previously unheard tool to provide feedback, evaluation and criticism.
Consistently poor consumer feedback of a product or service could be considered a red flag in terms of company reputation, and possibly even operational flexibility if the organisation has shown no willingness to improve over time.
Monitoring and evaluating consumer feedback can serve as a reflection, at least in part, of the “voice” of a company’s customer base.
Similarly to consumer voice, public employee feedback can act as a barometer for company performance and culture.
While websites such as Glassdoor have paved the way for employees to review workplaces, by interrogating all online public online data we can uncover a multitude of potential risks hidden from traditional feedback platforms.
Social media due diligence checks should also be used to help build a more complete picture of the character and attitude of management teams ahead of any deal.
Reviewing a management team’s online footprint can help highlight potential risks including damaging behaviours and misconduct – all of which can negatively impact the reputation and value of the target company in the present and future if left unchecked.
One previous example includes damning allegations of sexism and derogatory behaviour from staff towards their company’s CEO. Upon reviewing the report, our client decided not to continue with the deal – a decision that was reaffirmed when the CEO of the target company hit the press a year later.
The impact of public online reputation on businesses and value
Significant behavioural issues of staff should also be considered particularly seriously considering the damaging impact that “cancel culture” can have on an organisation’s value.
In what is now a renewed age of social activism, amplified by movements like Black Lives Matter and Me Too, it’s imperative that a potential buyer pays attention to what’s being said about a target company on social media.
The mass withdrawal of support for a person or company due to their public or online behaviour, whether labelled “cancel culture” or not, will have clear implications for the reputation and value of a business. The reputational impact of this type of activism can also spread beyond the subject entity, proving damaging to investors and parent companies also if left unchecked.
Understanding all of the risks
Social media due diligence can clearly uncover pertinent information to aid traditional checks, when harnessed correctly. The vast quantities of associated data combined with the need for objectivity means that the right third party tools should always be used.
Neotas’ proprietary open source due diligence tools combined with extensive experience can be used to provide deeper insights to help inform investment decisions. Our checks process 100% of publicly available data in over 200 languages, leaving no stone unturned when investigating relevant investment risks.
It is crucial that appropriate care and context is given to risks uncovered during social media due diligence checks, especially considering the natural negativity bias of online reviews. Neotas reports provide zero false positives, enabling resources to be committed to reviewing real risks only.
For global acquisitions and investment activities, particular care should be taken when considering international data privacy legislation and as such, an ISO-certified third party provider like Neotas should always be used.
Get in touch with our team today to discuss supplementing your investment due diligence with social media and online checks.