Briefly Speaking: Digital Brand Considerations in Mergers and Acquisitions

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Caitlin: Hello, everyone, and welcome to today's webinar, "Briefly Speaking: Digital Brand Considerations in Mergers and Acquisitions." My name is Caitlin Alaburda, and I will be your moderator.

Joining us today are David Franklin and Helena Ledic. David is the Global Director of Brand Protection at CSC. He is responsible for the global direction and leadership of CSC's brand protection services, which help clients detect and remove online threats. Helena is an associate general counsel for CSC in the Chicago office. She is a business attorney with experience in negotiating commercial contracts, corporate governance, compliance, security, and privacy.

And with that, let's welcome David and Helena.

Helena: Thank you, Caitlin. Today's agenda for our Briefly Speaking presentation on digital brand considerations for M&A, what we're going to cover is we'll talk a little bit about CSC. Then we're going to go into those brand considerations with M&A, and then what we'll do is we'll finish up with a question and answer session.

But first a little bit about CSC. CSC offers solutions for every phase of the business life cycle. We help form entities. We help maintain compliance and execute secure transaction work. We offer a single tax and risk management platform for our customers. And most importantly for today, we support mergers and acquisitions. We help effectively manage, promote, and secure our clients' valuable brand assets against online threats.

We work with more than 10,000 law firms, 180,000 corporate customers, and 3,000 financial and market customers. We protect more than 65% of the 100 Best Global Brands, including 7 of the top 10, and we work with more than 90% of the Fortune 500.

To get us started off David is going to talk to us about CSC's digital brand services. David take it away.

David: Thank you very much, Helena. So yeah, CSC's Digital Brand Services Division is unique in the industry in providing sort of three pillars of services, which all complement each other, and they've been able to help thousands of brands over the last 20 or 30 years that the CSC Digital Brand Services Division has been providing services. So domain management and security services are fundamental to helping enable a business online, so domain management services, DNS services, we'll come to DNS in a minute, digital certificate management. Launching brands, brand advisory as well as brand protection services, so monitoring for any kind of brand infringement, whether that's in domain name, social media, or fake goods being sold online. As well as on the right-hand side our fraud protection services, so protecting companies against phishing attacks, any kind of security attempts or impersonation attempts.

Helena: So David is going to take us into the current M&A landscape, the best practices for digital considerations pre-acquisition and then also post-acquisition, and then how online audits and ongoing monitoring can help. And now we'll get started with merger and acquisition landscape. So David, 2021 was what we call a blowout year for M&A. Can you reflect a little bit on that and then what's happening with 2022?

David: Sure, Helena, with pleasure. So yeah, 2021 easily beat the pre-pandemic level of M&A activity that we've seen. It nearly matched the peaks you can see on this graph in 2015 and 2007. And in fact, in 2021, $5.1 trillion worth of M&A activity was recorded.

And some of you on this call might wonder why that was the case. Well, there were three main things driving the activities for M&A in 2021. One was very easy access to capital. A second was low interest rates, and the third was a recovering global economy after the pandemic. So that's a reason why it was such a blowout year. Now 2022 could also be as big if not bigger.

At the end of 2021, there was a survey of 350 U.S. business leaders that predicted that 2022 could be even bigger because of a number of things. One is continued access to record amounts of cash. A second factor is the acute labor shortage that I'm sure many of you are experiencing on this call. Companies are using M&A activity or mergers and acquisitions as a way to acquire more talented staff, as a sort of a shortcut.

And we're also seeing a continued trend of traditional companies buying technical companies or tech companies to digitize their business. As we saw in the pandemic, there was a massive move for business to move online, and we're seeing traditional companies wanting to make sure that they are doing as much as they can to digitalize their business. So that's driving the M&A activity, and I think that's going to continue through 2022.

However, that prediction at the end of 2021 was before the war in Ukraine broke out and before interest rates started to creep up and a certain amount of sort of uncertainty sort of crept into the global business outlook. So that might affect the prediction a little bit. So it's not quite so clear-cut, but I still think 2022 will be a very strong year for M&A activity.

Helena: So now what we're going to do is David is going to walk us into the best practices for digital considerations pre-acquisition. So David, why don't you tell us about the digital assets that we need to consider as part of the M&A process?

David: Well, Helena, it's not just about the company's website or their domain names, but there's a number of other things to consider. It's your whole business infrastructure, your email, your DNS infrastructure that might underpin your VPN or virtual private network that you might use for collaborative file access amongst your employees, especially now that many people work from home and have more of a sort of distributed IT architecture, social media, mobile apps. So all of these need to be considered as part of the M&A process.

So the first step with any M&A activity is really to establish who has access to the digital assets we just saw a moment ago, and it's really important to understand who has access to what so who's got access to domain names, DNS, SSL, web hosting, etc. And what we find is that M&A activity often involves staff churn, and a lot of the time some of these digital assets will be owned by individuals who've purchased maybe an SSL certificate using a credit card and they have a username and password, which they know, and if they're not part of the M&A process and they leave, then that could cause all sorts of issues.

And often we find that the due diligence that we're talking about here only happens once the ink has dried and the acquisition is public, which might often be too late. So this webinar will hopefully help you to understand what needs to be considered in advance of any M&A activity and avoid the pitfalls that you might otherwise fall into.

So one of the key considerations as part of any M&A activity is to make sure your domain assets are in good order. You may not know that M&A activity is coming. That's quite often the case. So it's good practice to make sure that the legal owner for any of your websites or any of your domain names is correct and up to date, just as it would be for trademark certificates.

Helena: Now, David, let me stop you right here. You talk about that it needs to be in good order, but we so often know that things are not in good order. What happens when they're not in good order?

David: Well, if the domain ownership or the Whois record for a website is incorrect and it's part of M&A activity, it can be an admin nightmare to get it corrected. It's deemed out of compliance. Worst case, a domain registrar could take down a website. That's unlikely in most cases. In most cases, we'll just need to supply lots of supporting legal documentation. So it just makes the whole process a lot more cumbersome and long-winded.

So make sure you don't leave any domain assets out of the list that you're working on transferring as part of the M&A activity and make sure that the companies referenced in those domains are all correct and up to date as the company that you're referencing as part of the merger and acquisitions and not another company, because if it's another company and they're not part of the M&A process, you're going to need to rely on goodwill to resolve that with that other company, and sometimes the goodwill might not be there and you might get into a battle as to who owns the domain. So make sure everything is up to date in terms of legal owner. It just makes it as efficient as possible.

The second point here is are all of your domain assets consolidated with one registrar. So it probably is fairly obvious, but if you've got all of your domains with one registrar, it makes it incredibly easy to move them over as part of an M&A process, so websites, the email, everything under those websites, and it makes the risk of downtime so much less. So just remember that one hour of website downtime costs, on average, businesses 120,000 U.S. dollars per hour. If you've got them all with one registrar, then it's very unlikely you'll have any downtime. If you've got 10, 20, sometimes we see companies with tens of different term third parties who might be registering and administering their domain names, and there's a very much higher risk that one of those websites will go down as part of the transfer process.

And then lastly, when you're selling an organization, define the list of domains to be transferred, especially if you have names across multiple organizations. If you accidentally forget, it can cause issues and end up in a situation where you're in a battle with a third party. Make sure you're super clear so you don't give away more than you intended. And if you have any licensing arrangements, which is quite common with certain types of industries, like for instance automotive industries where car dealers might be licensed to have domains with certain IP, make sure they're also included as well.

So don't forget about your SSL certificates, your DNS infrastructure, and also your social media. Some of you might not have forgotten about that, and you may well have clicked the button earlier when we did the poll. And for those of you that are not familiar with these terms, DNS is essentially the phone book of the website. It's a way of connecting browsers to websites. So it tells a browser how to get to a particular website.

SSL, it's the secure encryption that makes sure that if you're transacting with a website, that all of your details are being encrypted and they're not visible to others that might be trying to listen in to that transaction.

So SSL certificates, domain name systems, it's also good to consider consolidating those with one provider before moving them as part of M&A activity. If your certificate expires, and as we saw earlier many of these we commonly find in companies that they might have been registered by an individual with a credit card, that individual leaves as part of the M&A process, and then it becomes very difficult then to manage when those SSL certificates are expiring, when they need renewing. And if they go down, then customers going to that website will then see a not trusted status for the website, which obviously causes issues with customer uncertainty, customer trust issues, and can be quite a scramble to fix it. It can take several hours in some cases.

Also make sure you've identified all of the social media handles. Make sure you know who has access and the username and passwords for those social media profiles. There was a case recently where after a merger and acquisition where a customer came to us and said, "Oh, do you know who has access to that LinkedIn account?" And, of course, it was a case where there was somebody who had left the organization. So make sure that you've got everything in good order before the M&A activity.

Helena: So David has walked us through the best practices pre-acquisition. Now what he's going to do is he's going to take us through the best practices for digital considerations post-acquisition.

David: So post-acquisition, you will probably need to clean up the ownership details on your domain portfolio with your registrar to reflect the new entity or the new status after the acquisition. If you're the acquiring company, you might also want to do an audit of the domain names to make sure you have the complete list and that you have complete visibility of all the ownership details.

Make sure you budget for that step, the cleanup because it can be quite significant if there's a lot of ownership changes that need to be made in order to get everything in order.

And if there's a merged entity or a new brand to be launched, there's also going to be additional considerations. We'll cover that in the next slide.

The other thing to think about is identify the consumer review sites where your company appears. Some of these will need to have amended contact details with the new merged company identity, so company name, address, etc. It always pays to be ahead of the game when it comes to consumer review sites.

So in the last slide we touched on brand launch considerations and where you might have a new entity that is formed as part of an M&A. So we're going to dive into just a little more detail on this slide.

So the first thing to think about is, is the brand launch a crown jewel addition, or is it moderately important or just campaign related, and that will help you gauge how much preparation and protection you need, whether it's a sort of a broad or the broadest set of registrations you need to do. So really you need to be prepared and work with a registrar that can do the new domain registration systematically and quickly. And one of the most important things is organize them to hit at exactly the same time and at the right time. So some registrations may take longer to set up. So it's important to have a registrar that can help you manage all of that so when you press the go button for the new brand launch, everything happens at the same time.

The other thing to think about is that it's really important to think about using a masking service to keep it under wraps, because we've seen time and time again that third parties, domain squatters, and domain investors will be watching and if they see any registrations that might give them a clue that there's an M&A coming down the line, they'll quickly snap up domains in advance or as soon as they hit the news. For instance, we've seen many cases where people might register the two different sort of merged entities combined together for company1company2.com, or abbreviations like comp1-comp2.com, or newbrand.biz, etc. So if you keep it under wraps with a masking service, there's less chance that people will get wind of something going on.

The other thing is it's important to register (sic) for new registrations before the launch to see what people might be registering and what might need to be acquired or contested post-launch. So we often get involved doing an audit if somebody's thinking of a new whizzy brand and they want to see what are the existing registrations out there because people might have already registered years ago for a completely different sort of business area and it might be an interesting domain that somebody would want to acquire. So we can sort of landscape it and see what might be some of the cleanup work that needs to be done afterwards to maybe bring some of those registrations into your ownership.

And then think about what kind of registrations you want to make. I mean this is a good policy anyway not just for brand launch, for general housekeeping. So what sort of domain registrations you need to have as a core portfolio and which ones you should register from a sort of tactical point of view. I mean, in general, some of our guidelines and we we've got some further reading at the end to point you towards, but keep the domain length for your new brand launch under 15 to 20 characters, avoid hyphens, avoid anything that would be difficult to spell, that probably goes without saying, and consider country-level registrations as well. We know that Google and other search engines will geotarget search results. So for instance, if you're in the UK and you type in a brand, then brand.co.uk will get a higher search ranking. If you're in Germany, the brand.de will get a higher search ranking. So it's important to consider what country-level registrations also make sense.

And yeah, don't forget social media as well. So you'll need to make sure you've registered the social media handles so that those aren't snapped up once you've launched your brand.

The other thing is think about security, so things like if you've got key domain names you're going to be driving lots of business through, make sure they've got proper security, multi-lock, two-factor authentication, email fraud protection, that sort of thing.

Helena: So David has walked us through the considerations pre-mergers and acquisitions and post-mergers and acquisitions. Now what he's going to do is he's going to walk us through online auditing and ongoing monitoring and how that can help organizations.

David: So there are a range of digital threats that can impact a company's IP value. And why is that important in the context of mergers and acquisitions? Well, if you are an organization that is purchasing another company and that company is facing some of these digital threats, then that can affect their IP value. It could drive the value of a company's IP down, and it can be a useful negotiating gambit to get a better price for your acquisition. Conversely, if you are the company being acquired and you can prove that you're pretty much clear of these kind of digital threats, then that can give you perhaps a better IP valuation and enable you to be more robust in your negotiations as part of an M&A. So that's kind of why it makes sense to consider it in the overall context of mergers and acquisitions.

Some of these digital threats are things like domain infringements, copycat domain names that could confuse customers, lead them to the wrong place, cause them to be scammed out of money. That's quite common.

Online counterfeits, we often see in many different market areas that counterfeits can really erode a brand's value. It can destroy the cachet or exclusiveness of luxury brands for instance. We find it can undermine the sort of safety aspect of certain things, like car parts for instance.

We see impersonation on social media sites. Sometimes you get fake lottery scams, fake donation scams. There's been some high profile cases in the last few years of that.

Phishing, in the last two or three years, as part of the pandemic, we've seen phishing increase by 300% over the last two years. So there's a lot of that going on. As more and more people are online, we're seeing more and more people being targeted by the phishers to trick them out of money.

So all of those things can really impact a company's IP value. So you need to be aware of those.

So one of the ways to assess how much your company or a company that you might be considering as an acquisition is being affected by IP infringement is to do an audit. One of the things that CSC does for many of its clients is an audit report of all the kind of issues that they might be facing in a kind of a snapshot of activity that's going on at the moment, and it covers things like domain name issues, logo issues, social media, online marketplaces, security issues. So this is a really good step to have sort of a visibility and a picture of what's out there because a lot of it might not be known to you and this helps make the unknowns known.

So the other thing to consider is whether it makes sense to have an ongoing brand monitoring activity as well as the snapshot audit that we just saw, especially if you've launched a new brand or you've got a newly merge entity and you want to protect the value and especially protect the IP value in that new entity, because as we've seen, especially over the last few years, the internet is constantly growing, rapidly changing. Infringing content can really devalue your brand, and it makes sense to have that protection on an ongoing basis, not just as a one-stop snapshot.

So this is something that obviously CSC has been able to help many companies with. There is some further information on that link there. We would encourage you to go there because what we have found is that in this sort of new digital age if a company has been impacted and customers have been defrauded or there's a proliferation of fakes, we find that that news travels very quickly and people post on social media and you can very quickly get a bad reputation if a brand is not seen to be dealing with it and tackling the problem and taking responsibility.

Helena: To supplement everything that David has told us about, we have a couple of guides for you from CSC. So a little bit of light bedtime reading about best practices with mergers and acquisitions and then developing and launching a new brand.

David: So don't be too alarmed with the reference to light bedtime reading. These are only about four or five pages long in each case. They're very readable, and in fact the M&A resource has got a really handy checklist, which we'll cover very briefly on the next slide.

So here's the M&A checklist I referred to earlier, and this is a list of things that really you should make sure you've covered off and considered before entering into any M&A activity, things like domain audit, DNS audit, SSL certificates, making sure that you've got a budget for any modification to domain ownership records after post-acquisition, making sure you know who all the authorized users are and who all the vendors are providing different services for the different digital assets. So it's some of the really key considerations.

Helena: And certainly, for our audience members, this presentation will be available for you to download. Feel free to copy out the M&A digital brand considerations checklist and put that into your overall checklist, your overall playbook as just another thing that you can add in there as part of that entire M&A process.