In the fast-paced world of M&A deals, intellectual property due diligence is one type of due diligence that is sometimes overlooked. This can cause serious issues for the buyer. Here, you can find out why IP due diligence is so important in M&A, what it covers and how to do it seamlessly (whether you're buy-side or sell-side) with our free checklist.
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What is IP due diligence in M&A?Intellectual property due diligence in mergers and acquisitions is the analysis of a target company’s IP assets. The aim of an IP due diligence investigation is to:
- Assess their quality
- Determine their value (and therefore the overall value of the business)
- Patents and patent applications
- Trademarks, copyrights and trade secrets
- ‘Doing Business As’ names
- Domain names
- Slogans and brand hashtags
- Publicity rights
- Software and databases
Why intellectual property due diligence is importantIntellectual property due diligence is important for buyers because it can help them evaluate whether a target acquisition is worthwhile, to avoid deal-breakers, and/or determine how much the target company is worth.
In fact, IP due diligence is also valuable for the seller. By performing the due diligence process on your own company, you can surface any risks or potential IP issues that might hinder a sale. This puts you in a good position to make any necessary amendments or preparations ahead of the buy-side team conducting due diligence.
IP due diligence issuesAn extreme example of IP due diligence gone wrong involved Volkswagen and Rolls Royce in 1998. VW bought the assets of Rolls Royce and Bentley for a sum in the region of $900 million. However, it wasn’t until the deal was done that VW realized the Rolls Royce trademark wasn’t included.
IP issues like this can occur for two reasons:
- The process itself is moving too fast: there is always an urgency to close a deal, which can make robust investigation into the target impossible.
- There is little accountability for those performing the due diligence: the bankers, consultants, or lawyers driving the deal will be unaffected by IP issues, whereas the acquiring company will not.
Intellectual property due diligence checklistIn M&A transactions involving IP, a key question the acquirer should be asking is:
Are other companies working in (or have worked in) the same or similar IP space?
If there are lots of companies with relevant patent filings, this is an indication that there are plentiful ways to solve the same customer or market need, which could erode the value of the M&A transaction.
Our intellectual property due diligence checklist covers everything you need to prepare or review (depending on whether you're sell or buy-side) during an M&A deal.
The best advice we can give to any business considering a sale is to prepare well in advance. However, if you are selling a business in a hurry, Ansarada’s M&A: Company Sale/Exit Pathway is ideal.
A digitized template for M&A, it contains all the critical data points that ensure a company is healthy and ready for sale. All you need to do is upload your documentation into the secure platform. Then, when it’s time for your business exit, all your information is correctly structured and ready to go.