Thanks to Stephanie Perryman with Regions Bank in Fort Worth for recommending this article.  While it’s become commonplace for employers to use social media in evaluating potential hires as part of the interview process, this is the first report I’ve seen about using it in M&A transactions.  I’m sure it won’t be the last!

From MiddleMarketGrowth.org:

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LinkedIn: A Modern Tool for M&A Due Diligence

WAYNE BREITBARTH

With more than 360 million members, LinkedIn is the world’s largest database of business professionals. Each member expresses his or her professional identity by uploading information to a profile, and you can access nearly all of that information for free. This gold mine of information can be invaluable during the discovery, verification and integration phases of your mergers and acquisitions due diligence.

In 2013, the law firm Fasken Martineau conducted its first Social Media M&A Survey, querying senior managers in the M&A industry on their use of social media—such as LinkedIn, Twitter and Facebook—for disclosing transactions and gathering information on acquisition targets. Among the survey authors’ findings was the discovery that “respondents love LinkedIn for research.”

Results pertaining to strategy and due diligence were reported as follows:

• Thirty-six percent of respondents used social media platforms to research potential acquisition targets in the last year, and 48 percent used social media platforms to investigate companies involved in transactions.

• Among the respondents who used social media for research, 72 percent said LinkedIn added the most value; meanwhile, 50 percent said Facebook added value, while 41 percent named corporate blogs, 31 percent Twitter and 23 percent YouTube.

If you’re not tapping into this vast reservoir of information, you may be missing out on critical facts that will help you or your client limit risk, establish value and determine what can be done to improve the company following an acquisition.

Social media risks

Despite the valuable information that can be found on social media sites, there are some risks that need to be taken into account. In their article “M&A Due Diligence and the Perils of Social Media” Kelley Parker, Nick Ramphal, Justin Hamill and Paul Weiss, partners in the corporate department and members of the mergers and acquisitions group at the law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP, acknowledged the benefits of LinkedIn, but cautioned users:

“Conducting due diligence through social media sites can be a risky proposition for M&A principals and advisers seeking to keep their intentions private. Digital footprints, or data about an interaction with a website that the website collects and stores, may compromise deal secrecy if exposed.”

In a companion video, Hamill shared three important steps to consider prior to and while using social media for due diligence:

1. Keep deal teams small and coordinate research efforts
2. Monitor privacy settings
3. Maintain strict anonymity

On his second point, I believe Hammill is referring to LinkedIn’s privacy setting: “What others see when you’ve viewed their profile.” Access this setting by scrolling over your photo in the upper right-hand corner of the top toolbar and selecting:

Privacy & Settings>Profile>Privacy Controls> What others see when you’ve viewed their profile>You will be totally anonymous.

This is not the default or recommended setting from LinkedIn, so you will have to be proactive to make this change.

Once you’ve adjusted your settings to maintain your anonymity, you’re ready to use LinkedIn to discover information that you cannot find anywhere else. This includes not only information about the acquisition target and its key employees but also information about the company’s competitors and their employees, which can help you assess the competitive landscape.

How to use LinkedIn profiles in M&A due diligence

Before the advent of LinkedIn, the main source of written information about the management team and other key employees was limited to a company’s personnel files. But today you have access to employees’ LinkedIn profiles, which are typically quite detailed and generally very reliable because each person provides his or her own information.

On each individual’s profile you’ll be able to view educational background, work history (including dates of employment at each company), groups and association memberships, and other interests. Most people also include a narrative about their current responsibilities, goals and expertise, as well as media files that display their accomplishments, all of which can be very insightful.

Here are some of the questions that may be answered by an investigation of employees’ individual LinkedIn profiles:

• Where have they been employed prior to the target company?Do they have exceptional recommendations from customers, industry leaders, etc.?
• Do they display important industry-related credentials?
• What is the typical duration of employment at the target company?
• Have high-level employees at competitive companies previously worked for the target company?
• Have target company employees left the company and gone to work for competitors?
• How large are the networks of business development and salespeople?
• Do marketing and communications employees have thorough profiles, demonstrating that they’re savvy social media users?

These are a few of the many questions that can be answered by looking at LinkedIn profiles, but you can also uncover important information by investigating employees’ daily activity on LinkedIn.

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“If you’re not tapping into this vast reservoir of information, you may be missing out on critical facts that will help you or your client limit risk, establish value and determine what can be done to improve the company following an acquisition.”

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If you look at what employees are sharing with their LinkedIn networks, fellow LinkedIn group members and the entire LinkedIn universe, you’ll be able to determine whether a target company’s staff is established as thought leaders in the industry. A strong thought leadership role can contribute to greater lead generation, increased sales and higher profit margins.

Here are some of the questions that may be answered by an investigation of what’s shared on LinkedIn:

• Are employees sharing important, relevant and helpful company and industry information?
• Does sharing this information position the individual and/or the company as a positive thought leader?
• What are the number and quality of the “likes,” “shares” and comments on the information being shared?
• Are any employees sharing relevant information in important LinkedIn industry groups?

You may also find it helpful to compare the target company’s daily activity with that of competitors, since most customers prefer to engage with the company that appears to have the greatest expertise in the marketplace.

Discover valuable information on LinkedIn company pages

Most companies have taken advantage of the opportunity to create a LinkedIn company page. This page displays an overview of the company, but it’s also a great way to share relevant information about products, promotions and job openings. People who opt in can also “follow” the company and automatically receive this information (similar to Facebook and Twitter).

When doing your due diligence work, you might be interested in seeking answers on LinkedIn to these questions:

• What type of information is the company sharing, and how often is the firm sharing it?
• What are the number and quality of the “likes,” “shares” and comments on the information being shared?
• How many nonemployees are following the company page, and how does this compare to competitors?
• Which companies are listed in the “People Also Viewed” section of LinkedIn?
• What critical job openings are being shared?
• Is there a concentration of job openings is a particular area?

As you can see, there is a lot of information on LinkedIn that is not commonly available via other avenues. Before you undertake your next due diligence review, define your team’s procedures and adjust your LinkedIn privacy settings. Then start digging into the world’s largest database of business professionals. //

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Wayne Breitbarth, CPA, is CEO of Power Formula LLC. He has been involved in numerous M&A transactions during his 20+ years as a CFO and is a past member of ACG Wisconsin.

He is currently a speaker, nationally recognized industry leader in LinkedIn training and marketing, and author of the critically acclaimed book “The Power Formula for LinkedIn Success.” He has been featured in Forbes, Inc.,Wired and American Express Open Forum and seen on NBC and Fox Business.

http://www.middlemarketgrowth.org/linkedin-a-modern-tool-for-ma-due-diligence/