Almost all mergers and acquisitions involve asset transfer. Traditionally, M&A due diligence focuses on tangible assets. As intellectual properties (IP) become increasingly important to the success of business ventures, thorough review of IP assets is also vital for a successful M&A. Corporations often make critical mistakes regarding intellectual property during M&As. Here are three simple tips that can help you avoid making such mistakes.
- Include IP Due Diligence in Your Planning
Not all M&A deals concern IP assets and not all M&A deals involve IP transactions. But most do. When you are planning for an M&A, don’t make IP due diligence an after-thought. If IP assets are involved, be sure to assemble a team to handle these issues just as you would a tax or accounting team! Get started early, because the IP due diligence process is often time consuming.
- Do Your Homework
This may seem obvious and cliché but sometimes due diligence is overlooked because of its lack of appeal and glamour. In 1998, Volkswagen spent approximately three quarters of a billion dollars on Rolls Royce Motor Cars. It was not until after the deal was done that Volkswagen realized that while it owned all the rights to manufacture the vehicle, it did not have the right to put the name on it. Another little-known German car maker named BMW actually owned the rights to the Rolls Royce name. Volkswagen and BMW eventually came to an agreement, but it was only after one of the most public and most embarrassing cases of lack of due diligence came to light.
Use the 4W’s when dealing with IP assets: What, Who, When and Where.
What: Identify the relevant IP assets. Do you have trademark/trade dress, copyright, trade secrets or patents?
Who: Check who owns what rights to the IP assets. Like a mortgage IP rights can be sliced and diced and then re-bundled in many different ways. Important rights can be lost if government registrations were not properly maintained.
When: Determine when the IP assets will expire, when government renewals will come due and what the corresponding costs will be.
Where: Ascertain where (on the globe) the IP assets are legally recognized and registered. Evaluate if there are gaps in market coverage and corresponding IP registrations worldwide.
- Include the IP in the Overall Value
IP can dramatically alter the price and overall significance of an M&A deal. Investment bankers and other financial advisors have been known to push IP assets to the sidelines because the value of IP assets is a number that is hard to determine and the valuation process can slow down the buying process tremendously. It might take more time, but it will undoubtedly save headaches and heartbreak in the end. It can also help identify, early in the process, IP related pitfalls and roadblocks that could potentially wreck the deal.