October 15, 2020 10:13 am Published by

The impact of IP on M&A transactions

In a previous blog post we announced the merger between Clarivate Plc and CPA Global, a global leader in IP information services. This may make you ask yourself why these two companies chose to merge in a time of recession when a large number of businesses will not survive even in their current form.

The answer is simple: key IP assets, strong strategic fit and penetration in new territories. Currently, we are seeing an emerging trend in M&A deals solely driven by the acquisition of key IP assets.

Why are IP assets such a key factor in M&A transactions?

IP is defined as non-physical assets which usually represent 80% of the value of a typical business and are therefore, the company’s most valuable assets in M&A deals. IP is a crucial incentive for companies to pursue deals, especially in technologically driven M&A transactions because it serves as a competitive advantage against acquirer’s rivals, could enable entrance of new markets, generate a new revenue stream through licensing agreements and even act as a collateral when securing loans.

IP includes trademarks, copyrights, patents and licenses. Because intellectual property is defined as intangible assets, software and software as a service (SaaS) are also considered as IP. As such it is very important to have a good IP management during the M&A process in order to protect both parties from risks and liabilities.

What is IP due diligence and why conducting one is important?

The IP due diligence is an audit to assess the quality and quantity of the intangible assets owned by or licensed to the company. It is important to do the valuation of the IP so that both parties can agree on the exact purchase price, capturing all IP assets in question. Also, it is important to know the maintenance of which assets generate unnecessary costs. The IP due diligence is of particular importance because it allows the acquirer to investigate whether  third parties can infringe their intellectual property rights and enables the assessment of potential for possible dispute exits. From the point of view of a prospective purchaser or licensee you should have a clear IP checklist of what you would like to investigate. An effective IP due diligence is a great way to mitigate unnecessary risks, avoid liabilities and protect both parties’ rights. This way you can be sure that the party from which you acquire the IP rights has full entitlement to them.

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