Digital Marketing Due Diligence
Acquiring a digital business is a significant and risky endeavor. According to Harvard Business Review, “M&A is a mug’s game, in which typically 70%–90% of acquisitions are abysmal failures.” The article continues by stating, “Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give it.” What you have to give and, as importantly, how you’ll give it is the driving purpose of an effective digital marketing due diligence effort.
I have worked with numerous private equity firms and business owners performing digital marketing due diligence projects. The specific of each project varied with some focused on analyzing the seller’s current product marketing and developing a new plan to leverage opportunities, cut waste and optimize under-served channels. Other times, the focus is on search engine optimization due diligence to assess organic search risks and determine ways to balance those risks with best practices or adjustments to the SEO strategy. In all cases, the goal is to to clearly understand the current marketing growth model so the buyer can focus on what to give it in order to achieve scale and/or cost savings.
Assessing Downside Risk and Identifying Upside Opportunities
Private equity teams and business owners are very smart. They definitely understand financial management. However, what I have experienced is that they typically overlook or only scratch the surface of the seller’s current digital marketing strategy. Unless the buyers have experience operating a digital business or with either leading or conducting the digital marketing practice, the expertise and experience is simply not available to perform an effective and reliable assessment. A “barely-scratches-the-surface” assessment won’t uncover major cost savings by eliminating poor performing keywords in a media spend. Major risks lurking below the surface from a risky SEO strategy could damage future organic (e.g. very low cost) search traffic. Further, inaccurate data capturing in Google Analytics could be inflating visits. Many other “gotchas” may be in shadows not noticeable by the untrained observer.
Assessing the potential downside though is only one side of the coin. An effective digital marketing due diligence project also identifies upside opportunities. Whether its untapped marketing channels to fuel growth, a new member on-boarding process to grow engagement, a more relevant content strategy to better own the space around your target audience, clearer messaging and points of difference to better target adjacent markets or to gain access to new organic search segments (e.g. vertical search) to expand reach, a due diligence project can set the stage for your immediate next steps post-acquisition.
How Does a Digital Marketing Due Diligence Project Work?
A digital marketing due diligence project typically involves four to five stages of validation, review and planning:
- External data analysis
- Internal data analysis
- Selle interview
- Digital marketing channel forecast (paid search growth/spend and SEO trends)
- Digital marketing growth plan (post-acquisition risk mitigation, best practices and upside opportunities)
The external data analysis focuses on verification and review of the digital business from an external perspective. It concentrates on site structure, information architecture, site speed, mobile-first experience, meta data, link analysis, search visibility, search performance compared to top competitors and brand/domain strength, authority and trust. It also focuses on core messaging and points of difference within the target market.
The internal data analysis uses the seller’s website analytics to uncover insights related to organic search trends, traffic fluctuations, traffic breakdown across all channels, and other performance indicators to shine further light on sustainability. The technology and code are reviewed to assess search engine crawl issues, server errors, and website page errors. Verification of analytics setup and configuration (specifically double-counting, gaps in data, unwanted or misleading filters on the data, referral spam, etc.) and attempting to identify any anomalies among different platforms and/or visitor types.
The seller interview is supplemental to gather context around any anomalies uncovered in either data analyses. For example, during a recent digital marketing due diligence project, the website analytics showed a significant reduction in the site-wide bounce rate. Was this due to a dramatic change to the home page that created greater engagement? What drove this positive change? Through the interview, we discovered that the change was a data capture/reporting alteration in the seller’s website analytics. The seller had transitioned to adjusted bounce rate reporting .This was a fair transition and now with this insight, we understood why the decrease occurred and how we could better understand the “adjusted” parameters to view user engagement through the right lens.
The seller interview also helps gain insights into the “whys” around content strategy and channel priorities and selection. For example, why was Google AdWoprds not being used and was it employed in the past but performed poorly? Asking these questions helps inform your future marketing plan and may uncover some practices to avoid if you decide to test the channel again. The interview also provides an opportunity to better understand performance metrics like customer acquisition cost (CAC), site-wide or specific call-to-action conversion rates, cost per action (e.g. for primary and secondary CTAs) and so on.
The digital marketing channel forecast leverages either the seller’s historical data or/and gathers trending data from Google to forecast channel reach and effectiveness. Are there opportunities to lower the cost per action, to drive up the return on the channel budget or to yield more actions from the same number of visitors through conversion rate testing and optimization? Further, what is the outlook on organic search growth across the digital business’ keyword profile? These are planning stage assessments that can help better determine upside opportunities either through growth or cost savings.
Lastly, the digital marketing growth plan bundles the learnings gained from the previous stages and leverages our experience and expertise to establish a go-to-market strategy for immediate post-acquisition execution. As an article from McKinsey titled, The Five Types of Successful Acquisitions stated,
“Each deal must have its own strategic logic. In our experience, acquirers in the most successful deals have specific, well-articulated value creation ideas going in. For less successful deals, the strategic rationales—such as pursuing international scale, filling portfolio gaps, or building a third leg of the portfolio—tend to be vague.”
Developing a digital marketing growth plan provides a specific, well-articulated approach to value creation. It focuses on how to maintain and generate more revenue on day one. Understanding the current reality helps to build an effective strategy for growth.
Managing Erratic Acquisition Timelines to Avoid Wasted Work
As a previous VP of Marketing and Content at a privately-held, fast growth company, I personally experienced the erratic timing of the acquisition cycle. Before we ultimately sold the company to a larger strategic buyer, I worked with a stellar team on eight acquisitions. The move fast, slow down, accelerate even faster, wait and so on cycle made timing incredibly hard to predict. As such, a buyer will contract us for all five stages of the digital marketing due diligence project but with a contingency that stages four and five won’t happen if the deal falls through. The time frame of the project maps to the timeline of the broader due diligence effort. This enables the buyer to only employ the stages needed at a particular point in time and not to perform any unnecessary work.
A Digital Marketing Due Diligence Project is a Plan for Success
Leverage the experience and expertise of our team to help strengthen your confidence with making the right acquisition decision. Knowing what you don’t know can help reduce risk and enable you to gather keen insights for potential terms and condition adjustments. No deal is ever ironclad and no amount of due diligence will eliminate all surprises. But mitigating the potential for issues that lie just “below the surface” could save you time and frustration (and your investment) in the long run.
Looking to conduct a digital marketing due diligence project? Kevin Gold, of Next Leap Strategy, helps business owners, marketers and sales leaders develop and execute effective marketing growth strategies to generate more sales leads and profitable customers. He is also co-founder of FindYourNextCustomers.com, a Customer Acquisition Accelerator Bootcamp for businesses. Get started by contacting Kevin at 513.601.8893 or visit www.NextLeapStrategy.com.