The importance of social media in your due diligence checklist

It is becoming increasingly common for employers to consider reviewing the social media presence of prospective recruits, but when considering a target company, what (if any) diligence takes place of the target?s social media footprint?

Typically the due diligence (DD) exercise is a core part of an acquisition process. DD gives the buyer the opportunity to delve into the business from a legal, financial and commercial perspective while providing insights into how the deal should be structured and priced. The aim of DD is to really get to know the business, unearthing issues giving rise to potential liabilities or otherwise undermining the value of the target.

The three traditional limbs of DD are commercial, financial and legal with clients, lawyers and accountants all understanding their part in the process. The responsibility for these elements tends to break down along traditional lines:

• the client undertakes commercial DD to get to know the business, 
• the accountants look at the financial and tax aspects of DD; and 
• the lawyers deal with reviewing contracts, employment issues and real estate etc.

In our experience, amongst all of this activity, the social media presence and activity of the target often fails to come under the same scrutiny and social media is still not included as a standard part of the DD process.

Social media impact

Social media is a key form of business communication, influencing the way businesses market, advertise and communicate with the world. 

In some markets, Facebook is now the single largest media platform (outperforming print and TV). Its power is the ability to directly reach customers and business peers, any time, no matter where they are. 

Through a brand?s social media presence customers, competitors and other online users see the opinions of the organisation, who it follows, what it stands for and how it responds to its customers. 

In addition to looking at the internal social media procedures and policies of a target, a buyer may also want to audit its wider social media presence and the “voice of the customer” reflected in the interactions that the target and others have through social media channels.

The social media footprint of an organisation is potentially huge and many companies do not have a clear idea of their social media inventory or ecosystem. 

Clearly the target?s official social media accounts should be included in a tailored DD exercise, but what about the personal LinkedIn or Facebook activity of employees that identifies a link to the target? Some careful thought should therefore be given to the scope of any social media DD exercise.

So where do you start? It is perhaps the corporate social media profile which is easiest to subject to DD. Initial enquiries could include requesting details of:

• All social media accounts
• Who is responsible for managing the social media output and who else has access 
• The procedures and policies around what is posted 
• Whether employees are obliged to manage their personal social media accounts in a way which does not bring their employer into disrepute
• All postings in the last 6 months including deleted postings

In considering the right enquiries to raise, one could look to some of the very public cautionary tales where social media has bitten back. Salutary lessons can be learned from Googling ?social media fail?, returning a catalogue of slips and trips. 

The majority of these are drawn from companies? corporate social media accounts rather than the personal accounts of employees. Certain factors are common – poor judgement or taste, staff inexperience or lack of proper internal procedures.

Given the potential reach and impact of a company?s social media footprint, why is this not yet forming a standard part of DD and why do many companies not have a clear understanding of their own social media footprint? 

 The answer to that appears to be simple: business use of social media continues to grow apace and we are all still learning and adapting to the new normal. 

The M&A market is only just beginning to see DD processes and procedures adapt to address the impact of social media but companies and their advisers should begin to discuss and agree how these issues will be handled as part of the deal process.

Kate Schmit is a partner at Stevens & Bolton LLP.

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