Everyone has heard of the damage that can done to a company through inappropriate use of social media, yet a company’s social media presence generally receives little to no attention when it comes to the purchase and sale of a business. Even though the goodwill associated with the business may be a major factor in the purchaser’s decision to buy it, the purchaser will rarely require more than a list of all passwords and login information and general representations and warranties related to intellectual property.
However, social media is increasingly central to the marketing – and therefore, profitability – of many businesses. Many companies use Twitter, Facebook, LinkedIn, blogs and other tools. Continued access to and use of these social media avenues is therefore critical to their success. It seems appropriate, then, that social media accounts attract the attention that other material business assets receive in the course of a purchase and sale transaction.
Social media accounts may also hide – in plain sight – a company’s breaches of trade-mark or other intellectual property laws. What are the names and details of the company’s social media accounts and does the seller have the right to use them? Secondly, are these rights transferring with the sale of the business?
Furthermore, a purchaser should ask whether a company has prepared – and educated its staff about – a social media policy for its employees. Not only should such a policy include appropriate guidelines and restrictions in respect of the use of social media, both personal and those owned by the company, but it should also require that all staff return all social media passwords and login information when they cease to work for the company. Particularly when the sale of the business will result in changes to personnel, a purchaser must ensure that adequate protections are in place to protect their new acquisition’s goodwill.
With increasing use by businesses of social media for marketing – combined with the damage to a company’s goodwill that can be caused by social media – it is an important component of a business to consider in the M&A process.