2014: Year of Tech Mergers and Acquisitions and Initial Public Offerings. Are You Intellectual Property-Ready?
February 26, 2014
2014 is nearly unanimously predicted to be a record year for mergers and acquisitions and IPOs in intellectual property-intensive industries such as technology (consumer, cloud, biotech, telecom, information security and data analytics) and media/entertainment. A variety of fundamentals, including a large inventory of cash on hand and low interest rates, drive analysts to predict that this year’s private equity investments will exceed last year’s record of $200 billion invested in roughly 2,000 companies. With that amount of money and companies in the “pipeline” 2014 is also predicted to be a record-setting year for tech IPOs.
Are you intellectual property-ready for the 2014 IP investment boom?
What is IP-readiness?
Intellectual property-readiness is a fundamental, mission-critical organizational state achieved by application of straight-forward audit principles and systems, through which buyers and sellers – and their advisors – should organize, assess, value and manage intellectual property rights. This readiness is especially important in the current fast-paced, highly-competitive merger and acquisition/IPO environment.
How is IP-readiness defined?
IP-readiness is defined by the ability to confirm that:
- the intellectual property has been properly protected;
- the chain of title to the subject intellectual property is unencumbered and otherwise unimpaired;
- inbound licenses of third party rights are secure;
- outbound licenses to third parties are being properly supervised and performed and that otherwise exploitation is enhancing, not weakening the assets; and
- the company and/or intellectual property is not infringing the rights of third parties and vice versa.
Why is IP-readiness mission-critical?
IP-readiness is mission-critical for companies preparing for outside investments
IP-readiness is essential for companies to properly manage their IP on an ongoing basis, and to be prepared to present their IP portfolio to investors. Companies preparing themselves for investors will benefit from IP-readiness before negotiations begin, by
- presenting the IP assets in an organized, well-managed light;
- being informed of any IP-related weaknesses that need to be addressed and enabling proactive resolution or mitigation;
- facilitating a more rapid completion of the transaction; and
- Ensuring that the highest possible value is placed on the IP-assets.
IP-readiness is mission-critical for investors
IP-readiness fully informs investors about the IP assets and equips investors to:
- decide whether to invest or terminate the investment dialogue (the “go/no-go” decision)
- determine which aspects of the company’s intellectual property assets require investment of time and money and thus affect the valuation;
- decide on the form of the transaction– asset or stock purchase;
- decide on what management participation might be needed for IP creation, protection, management and exploitation;
- define of key-man clauses at all levels of IP creation, protection, management and exploitation;
- determine the language and scope of key terms in the transaction agreement, including representations and warranties and licenses and/or assignment;
- prepare schedules of assets and liabilities and disclosures against them;
- calculate an accurate valuation of the IP aspects of the proposed transaction;
- determine the type, value and cost of IP-related insurance that should be taken to underwrite risks identified in the transaction and in the planned ongoing after-deal business.
IP-readiness is essential for advisors to both the buyer and the target company
Finally, to competently facilitate communications and execution of the parties’ own IP-readiness tasks, all advisors to those parties must also be IP-ready with respect to the subject IP. That is, they should be able to answer the same questions presented above – on behalf of the party they are representing. With IP values (and risks) soaring into the billions of dollars, all individuals involved in IP transactions should make IP-readiness a key business goal.