Social Media Sentiment Measurement – New Must-Have in Mergers & Acquisitions

The banking crisis that broke out in the first few months of the year resulted in a number of high-profile bank acquisitions. JPMorgan Chase acquired First Republic Bank, while across the pond, UBS acquired Credit Suisse in Europe’s biggest banking M&A deal in 15 years. In all the cases where acquisitions hit the headlines, we could observe significant social sentiment changes for the acquiring banks via our social analytics platform PUMP.

Traditionally, financial analysts have relied on metrics like EBITDA, growth rates, and synergy opportunities to assess the merit of potential transactions. However, the rise of social media has given us another rich source of data to consider - public sentiment. In this article, we explore the key ways social sentiment analysis helps in M&As.

The Importance of Social Sentiment in M&As

Social sentiment, especially when aggregated and analysed on a large, systematic scale, offers a wealth of information on the public’s mood before, during, and after M&A deals. In the realm of M&As, understanding public and social sentiment can give valuable insights into how well a merger or acquisition will be received, potential cultural clashes, and whether or not the strategic goals are likely to be achieved. In the post-acquisition stage, social sentiment can help gauge the effect of the deal on the merging brands or the acquiring brand.

Identifying Hidden Opportunities

Analysing social, consumer, and public sentiment at various stages of the M&A deal can benefit organisations in the following ways:

Brand Alignment

Social sentiment can reveal how well the brands of the two companies align in the eyes of consumers. A positive alignment can suggest not just a smooth transition but also untapped opportunities that may not have been apparent through traditional research.

Cultural Synergy

Cultural clashes are one of the top reasons M&As fail. Social sentiment signals and posts can be useful in evaluating public attitudes toward an upcoming merger and picking up on any potential cultural issues. By using sentiment analysis, a company can proactively address the identified issues before they escalate into larger problems that can threaten the merger.

Early Identification of Red Flags

Social media is often the first place disgruntled customers or employees air their grievances on. Sentiment analysis can help identify potential red flags in terms of organisational processes, customer service, employee satisfaction, and corporate culture that could impact the success of an M&A deal.

M&A Sentiment Analysis Case Studies

Public sentiment’s profound effect on M&A deals has long been established. This phenomenon predates the period of the last few years, when the social sentiment measurement industry evolved. A classic case is Microsoft’s acquisition of LinkedIn in 2016 in a mammoth $26 billion deal. Prior to the acquisition, sentiment analysis indicated a strong alignment between the two brands, especially among professionals who used both platforms. Post-acquisition data revealed that the positive sentiment not only remained steady but increased, validating the merger as a mutually beneficial arrangement.

While social sentiment tools back then were much less sophisticated than now, Microsoft, with its technical resources and access to the wealth of LinkedIn social data, could easily track public sentiment towards the merger.

In more recent times, the banking giant JPMorgan Chase (JPM) decided to move on with the acquisition of the troubled First Republic Bank (FRC) after carefully scrutinising public sentiment on the issue. FRC, which folded in late April, was on offer for a bargain.

However, against the backdrop of bank runs and bank collapses at the time, the overall public and investor sentiment towards the banking sector was panicky, to put it mildly. Any acquisition deal by JPM, or any other major bank, was bound to attract massive attention and speculation. Thus, JPM needed to move extremely cautiously with any acquisition initiative. Although financial estimates and a thorough review of FRC’s balance sheet were key actions undertaken by JPM’s team, the bank also paid considerable attention to public sentiment towards the deal.

Carrying out comprehensive due diligence paid off - JPM’s acquisition of FRC went smoothly and, as we could observe within PUMP, contributed positively to the bank’s social sentiment measures immediately after the acquisition announcement.

Mergers and acquisitions are complex undertakings that involve a multitude of factors. While traditional financial metrics will always be at the core of any M&A analysis, social media sentiment has emerged as an invaluable tool for gaining a more holistic view of a deal’s potential. From assessing brand alignment and cultural fit to identifying red flags early on, understanding public sentiment can uncover hidden opportunities that could make the difference between the success and failure of an M&A undertaking.