In the current digital economy, a strong social media presence can be a valuable asset and contribute significantly to a company's overall worth. But, it is not always recognised by the company balance sheet, often making it a periphery consideration during mergers and acquisitions (M&A).
Used effectively, social media can be a low-cost channel to drive brand awareness, increase engagement, and promote products or services to relevant consumer segments.
For some organisations, their social media presence is inextricably linked to their brand identity and essential to their overall success. For this reason, it is critical that prospective purchasers are able to gain effective control over a target's social media accounts as part of the transaction to capture and retain the value of this type of intangible asset.
Transfer of conventional IP assets in M&A
In the case of a share sale, control of conventional intellectual property (IP) assets including copyright, trade marks, patents etc.) pass to the purchaser as assets of the target company.
Conversely in an asset sale, assets need to be specifically assigned to the purchaser under the asset purchase agreement (APA). For registered IP, the relevant IP register is then updated through submission of an online form, supported by the APA or a specific deed of transfer provided to the purchaser at completion.
Transfer of social media assets in M&A
Unbeknown to many, social media accounts, like domain names, are not property that can be assigned. The account holder operates the account or uses the domain name under a form of contractual licence from the platform operator. Although it is common for the APA (in the case of an asset sale) to purport to assign the rights in the social media assets, the agreement is more appropriately expressed as an obligation on the seller to assist the purchaser to take control of the relevant accounts in accordance with the rules of the platform operator.
Some social media platforms such as YouTube and Facebook provide simple mechanisms for the transfer of account 'ownership'. However, the terms and conditions of some major social media platforms currently expressly prohibit the transfer of accounts through assignment, licensing or transfer.
LinkedIn: LinkedIn's "User Agreement" also does not allow users "to transfer any part of their account (including connections and groups)."
Twitter: The "Twitter Rules" that form part of its terms of service expressly prohibit the buying and selling of usernames.
How to acquire social media accounts in an M&A deal
Below is a step-by-step guide to securing access to, and control of, a target's social media during an M&A transaction.
STEP 1: Identify all relevant social media accounts
The first step is identifying the accounts used by the company. In most cases, these are public and searchable. During this process, you may wish to document the number of followers and any other distinguishable features of the account that contribute to its value.
STEP 2: Determine account holder structure and Ts & Cs
It's important to identify and understand the impact of the social media' platform's terms and conditions on the rights of the account holder. This will specify if accounts are or can be held by individuals, employees or a corporate entity.
STEP 3: Understanding portability
Portability can depend on the type of sale.
- In the case of a share sale, ensure that the relevant administration passwords and log-in details are provided on settlement.
- In the case of an asset sale, if the terms and conditions allow for transfer, ensure this process is followed, taking into account timeframes for completion. Also consider whether social media account management should be included in any post-completion transitional services agreement, which may stipulate maintained activity, number of followers, follower growth, or recourse in the event there is a material change in performance.
STEP 4: Navigating portability issues
If the terms and conditions do not specifically provide for transfer from the relevant account holder in the context of an asset sale, consider whether an indemnity is appropriate to protect against the potential risk of breach of the social media platform's terms and conditions in the event login and password details are shared for the purposes of operating the account post completion.
Following these steps can assist acquirers in maximising the value obtained during the acquisition of an asset concerning social media accounts, while mitigating risks associated with access and ownership after the transaction is finalised.
For expert guidance or more information on this topic, contact a member of Lander & Rogers' Digital Economy team.
Photo by Aman Pal on Unsplash
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