IP due diligence and risk assessment for accountants and corporate financiers
Whether you are involved in mergers and acquisitions, joint ventures, or private equity investments, due diligence into the intellectual property (IP) of any target has a critical role to play.
The reality of the IP each target owns or has rights to use, and how they protect and exploit their IP can significantly impact the value of the business. Understanding the IP of the businesses in detail can also give you additional leverage in price negotiations.
However, an accurate valuation and leverage aren’t the only reasons accountants and corporate financiers should invest in IP due diligence and risk assessment.
You need to do everything you can to mitigate the likelihood of potential legal risks. IP infringement claims, litigation history, or licensing disputes could derail the deal and these types of issue are not the ideal start to the business’ next chapter.
You also need to make completely sure you understand the assets, the IP and the strategy of the target before committing to the relationship. In many cases, the IP position is key in understanding whether your business goals and expectations are (or can be) aligned with the target’s.
WHAT DO YOU NEED TO KNOW ABOUT A BUSINESS’ IP POSITION TO REDUCE THE RISKS INVOLVED IN A CORPORATE FINANCE DEAL?
There are several areas you will need to verify to reduce the level of risk associated with a corporate finance deal:
- The ownership and rights to use the business’ IP assets and the associated assignments, licenses, and third-party rights.
- The scope and geographical coverage of the business’ various IP rights and confirmation these rights align with the company's strategy and objectives.
- The current status of the business’ registered IP rights including any issues raised in prosecution, maintenance and renewals including likely future costs.
- Any past, ongoing, or potential IP litigation or disputes, including threats of invalidation of rights or entitlement disputes.
- The existence of any out-licensing agreements and the terms which bind the company.
- Whether the business has evaluated its Freedom to Operate (FTO).
- Evaluating how the business manages their trade secrets and confidential information including utilising the required non-disclosure agreements (NDAs), employee contracts, and policies.
- The overall relevance and focus of the business’ IP portfolio to its business plan, including an IP strategy to support future competitive advantage.
It is also worth asking for an independent assessment as to how well the IP assets involved can be integrated into the acquiring business once the deal completes. To evaluate this, it is key to understand the target business’ systems and the way they have managed their IP to date as well as those of the acquiring business.
WHY SHOULD ACCOUNTANTS AND CORPORATE FINANCIERS ASK POTTER CLARKSON TO DELIVER THEIR IP DUE DILIGENCE AND ANALYSIS?
We have taken the time through experience to understand exactly what accountants need from us.
We already work closely with firms of accountants on a range of projects ranging from M&A to assisting with R&D tax credit and Patent Box projects. As a result, we fully appreciate your expertise in valuation of assets. We can complement the services you offer by delivering an accurate and comprehensive assessment of the relevance and strength of the IP involved in a deal alongside an analysis of the accompanying IP strategy and, crucially, how the IP strategy maps to the business’ commercial plan.
We do this by independently examining:
- The company’s business plan from an IP perspective (including, where relevant, their technology roadmap).
- Whether the IP strategy they have in place is appropriate or whether a more structured IP strategy should be created.
- Whether the IP they have covers the company’s products and services, or alternative rights need to be applied for.
- The licences, agreements, and other commercial contracts the business has entered into so we can confirm the impact of these on the IP they own and use.
- The legal ownership of their IP.
- The way they manage their IP (is it a Board level consideration or is it managed at a lower level?).
- The way they work with third parties and the impact these agreements could have on their future and their future IP strategy moving forward (again including confirmation that the required agreements are in place to define/support these relationships).
- Their attitude towards IP-related risks, including – most critically - their approach to freedom to operate (FTO).
It is a proven approach we have developed over the last 20 years whilst working closely on IP due diligence assignments with financial institutions, investors, law firms and other specialist professionals.
Once concluded, we will provide you with a straightforward, clear, and tailored overview that verifies the IP position of the company you are looking to acquire or sell so you can make an even more accurate assessment of its true value.
If you would like to find out more about our approach to IP due diligence and discuss how we could support your corporate finance team’s next deal, please contact us today.
