Assessing the Value of IP Always Pays Dividends in M&A

An M&A deal is always exciting for both the buyer and seller. For some companies, it is a once-in-a-lifetime experience, while others may go through numerous transactions over the course of their lifecycle.

As a prospective buyer, you should always make sure that the target company’s intellectual property is included in the scope of the due diligence review. IP due diligence is particularly important when the buyer is not familiar with the market or industry of the target company. A proper review will enable you to make an informed decision, as the value of IP could have a major impact on the valuation of the entire target.

Financiers also tend to be very interested in whether the company they are funding can mitigate the risks and avoid business interruptions that could be caused by, for example, a missing licence or a competitor’s infringement claim.

To help you avoid some of the worst IP pitfalls, we have put together a list of six key issues for a buyer to focus on when preparing a deal.

1. What IP Does the Target Company Have?

2. Is the Target Company’s IP Sufficiently Protected?

3. Who Owns the Target Company’s IP?

4. Has the Transfer of IP Been Sufficiently Secured?

5. Is the Target Company Infringing Any IP?

6. Does the Target Company Use Open Source in Its Products?

Answering these questions will help you form a good picture of the risks related to your target company’s IP. When you know exactly what you are buying, what the target company’s IP portfolio contains and what the strengths and weaknesses of its IP protection are, you will have a solid base of information to bring with you to the negotiating table.