The law, like other professions - take medicine for instance - has always been a "word of mouth" business. Word of mouth or viva voce, is essentially the passing of information from person to person by verbal communication. If your clients or patients are happy with the work you do, they will refer you to their colleagues, friends and family. You build a reputation and your business grows.
Word of Mouth in the digital age
Enter technology. The social media revolution has accelerated how "word of mouth" impacts corporate reputation. Instead of one client spreading the word verbally, we now live in a world where the likes of YouTube, Facebook and Twitter provide a platform for an almost infinite number of one-to-many word-of-mouth conversations. Social media and the large-scale communicative power of the internet represent an important modern-day tool for corporations to outwardly showcase their ethos and their brand, communicate with customers, and monitor what others are thinking and saying about the company in the market.
Social media, and digitization more generally, offer immense opportunities for building a brand or business. For example, in the consumer, retail, luxury and fashion industry, the likes of social media stars, bloggers and influencers play an evolving and ever more important role in building a company's online brand. Similarly, building a valuable digital presence through websites, domain names, blogs, media libraries, mobile applications, virtual gaming worlds and social networking accounts is a must for many businesses.
Take Logan Paul (and Maverick) who built a social media reach of over 48 million in three years. Similarly, we have seen 'blogger turned businesswoman', Huda Kattan, turn her ideas and knowledge into a multi-million dollar make-up and beauty empire through her use of social media. There are many examples of famous people who have crystallized their fame and following through the influence they have on social media. Think Kardashians or Tom Ford.
The message is clear: embrace digitization or risk being left behind in a competitive and complex world. In fact, there are very few major businesses today that remain outside of the social media environment. The latest figures from 2016 show that 86% of Fortune 500 companies have a corporate Twitter account; 86% have a Facebook profile; and 97% have a LinkedIn page.
The rise of social media in the M&A context
Until recently, social media assets have not been given much attention within an M&A context, often not even being explicitly covered in most M&A deals. The landscape is changing fast. When setting out to buy a business and assessing its value, it is nowadays critical to expand the due diligence beyond the target's physicality, contracts and employees and pay attention to digital assets, including the social media presence.
Increasingly, purchasers are calculating a significant proportion of the value of a target on the basis of its online profile and reputation. A sound and appealing digital infrastructure and presence will add significant value. On the flipside, a lack thereof, will have a negative impact on the purchase price.
So, what do you look for when assessing digital value?
What is the company's website like? Is it appealing and does it accurately reflect the brand and ethos of the company? How does it perform in search engine rankings?
What constitutes the business' digital assets? This would include all active websites, blogs, social media accounts, YouTube channels, domain names, mobile applications and images that depict how the business operates or images used in advertising the business. Create an inventory of digital assets and then assess the value of each such asset.
How active is the company on social media and is it engaging effectively? If the target's industry requires an active online presence and engagement with the customers, assessing that online presence and particularly its engagement with customers via social media can be very insightful. It is often helpful to look at what competitors of a target are up to and then assess how the target stacks up in comparison. It is also now possible to analyse a business' followers and customer base in a manner that no amount of public searches would have allowed for in the age before social media.
Due diligence nowadays also needs to examine how employees use social media in the business context, what company policies exist and how they are enforced. It might also be worthwhile to review what employees are saying about their company.
What is owned and what is original? Owners and entrepreneurs frequently do not set up social media accounts with a sale in mind. They will often own intellectual property, their websites and social media accounts in their personal name or in the name of family members. You have to ensure that these are transferable to the company and form part of the assets and the value that you are looking to buy. One also has to ensure that they have not been infringing on rights of others or posting content that is damaging to the business' reputation.
Will the business survive without its founder and their profile? Is there any succession plan? This is an emotional and touchy subject but one that a buyer needs to be very aware of.
No doubt, expanding a due diligence to the target's social media presence and digital assets more generally is a trend that is here to stay. Make sure you are ready to use the power to influence to make your business that much more attractive to a buyer. If you are the buyer, look for the value proposition in the digital footprint of your target.