The M&A Insights: Spotlight on Intellectual Property Rights survey examines how corporate executives and private equity practitioners value intellectual property (IP) assets, and how they respond to the unique challenges and opportunities presented by IP. The survey—conducted by mergermarket, an independent Mergers and Acquisitions (M&A) intelligence service, and sponsored by CRA International, Inc. and the K&L Gates law firm—shows that corporate and private equity (PE) continue to recognize IP assets as a critical source of M&A transactional value and risk in today’s knowledge-based economy. It also indicates areas where corporate and PE are in consensus and where they are in conflict. Key findings:
- The majority of respondents (52%) believe IP will become more important to overall M&A activity in the next five years. Given the uncertain economic climate, this is seen as a shift in focus to the long-term performance of deals.
- When evaluating a target, 85% of corporate respondents and 72% of PE respondents view IP assets as being as important as or more important than other assets.
- Respondents differed in their focus on IP valuation: When asked how often they value IP assets, 32% of corporate respondents report that they always explicitly value IP assets, while 44% of PE respondents say they value IP assets less than a quarter of the time.
- The majority of all respondents (80%) believes that the most common consequence of insufficient due diligence is the failure to properly identify IP risks. However, a majority of corporate respondents (56%) believes insufficient time is the main challenge in conducting due diligence of IP assets, followed by lack of sufficient resources (46%). PE respondents (50%) cite the failure to link identified legal issues to the valuation models as a main challenge.
- During due diligence, surprisingly few respondents indicated the critical importance of understanding proprietary information and all related policies. Only 32% of corporate respondents emphasized its importance while no PE respondents identified it as a vital part of the valuation process.
George Dickos, Co-Coordinator of K&L Gates’ Intellectual Property Practice, said, “Given the global increase in the issuance of patents and trademark registrations, it seems quite consistent that IP is being viewed as more important in M&A transactions. However, it appears that due diligence relating to IP still isn't on the forefront of activities when corporate and private equity respondents initiate an M&A transaction. Like all assets, ownership of the target's IP must be confirmed and clearly documented. Sophisticated legal and financial analyses regarding IP issues during the due diligence phase can give a much better picture up-front of possible competitive advantages, opportunities and pitfalls.”
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