The Role Of Social Media In M&A Transactions

Despite the ever-increasing use of social media by businesses, social media assets are often overlooked in merger and acquisition (M&A) transactions. When addressing a company’s assets in a purchase agreement, social media assets tend to be explicitly addressed only very briefly, or not at all. It is important to address such assets explicitly, as they do not always constitute intellectual property rights covered by IP representations and warranties.

US law firm Morrison & Foerster addresses the issue in its social media-focused Socially Aware newsletter, accessible here.

The first article in the newsletter, written by San Francisco Partner Aaron Rubin, examines the representations and warranties regarding such assets that the purchaser should require from the seller of a target company. It recognises, however, that the representations and warranties required will depend on the circumstances of the transaction.

The article suggests that the representations and warranties should widely define social media assets to ensure they refer to all types of online assets that the target company possesses. A target company’s social media assets include its pages and profiles on social networks and the associated followers, friends and other connections. These assets are not limited to the handful of major social networks but can include a company’s presence on blogs, mobile applications, photo-sharing websites, virtual worlds and video games, collaborative content websites such as Wikipedia, and online message boards.

A detailed list of proposed representations and warranties regarding social media assets can be found in the newsletter. Broadly, these include:

– None of the social media account names infringe or otherwise violate any intellectual property rights of any third party;

– All use of social media complies with both the terms and conditions of the social media services and any applicable laws and regulations;

– The target company has implemented and enforces an employee social media policy that provides that the company (rather than any employee or contractor) owns and controls the social media accounts, including all associated information and relationships with fans and followers, and all associated goodwill;

– The contemplated transaction will not result in the loss or impairment of the target company’s ability to use any social media accounts, or in the breach of any terms of use or other agreements applicable to such social media accounts.

With social media showing no sign of slowing down or becoming less valuable to businesses, purchasers would do well to start paying more explicit attention to social media assets in future M&A transactions. A recent study revealed that in 2014, 83 percent of Fortune 500 companies have a corporate Twitter account, 80 percent have a Facebook profile and 97 percent have a LinkedIn page.

It is worth noting that social media does not merely become relevant in valuing a target company’s assets. Information drawn from social media about public perception of companies and products is increasingly pervading the entire M&A process from start to finish.

In a 2013 survey carried out by Deloitte, 56 percent of corporate respondents stated that they used social media primarily for identification of a target company. Respondents also said they used it for due diligence and negotiations. It seems social media has a role to play during the whole life cycle of an M&A transaction.

Caitlin McGivern has a BA in Philosophy and Theology from the University of Oxford and an LL.M from the University of Law in London. She has Swiss, Irish and Canadian citizenships.

Image Credits: melodievj10