FAQs
Most frequently asked questions:
Your bank / lender facility letter and/or pledge and security documents will indicate whether or not the terms include IP assets as security. We recommend that you also review any contracts or other legal documents that may include restrictions around ownership or use of IP. Also, check any license agreements you have entered into for any terms that impact the use or ownership of your IP.
R&D tax claims or tax credits received are often good indicators that potentially valuable IP has been created in a business. Read more on R&D.
By identifying and cataloguing the critical IP assets in a business and the important role they play in providing a competitive moat around the business, you will increase a buyers’ perception of value beyond typical business valuation metrics. Buyers often focus their pricing based around the M&A valuation and then they take account of the risks associated with acquisition. In IP-rich businesses those risks frequently relate to:
- IP assets not being properly recorded or “locked down”
- Threat of key people leaving and taking critical know-how (e.g., product recipes, source code, technical specifications) with them without the relevant controls and safeguards in place
- Issues with proprietary software code and risks relating to potential use of open-source code
- IP housekeeping issues which emerge during the process, and serve as evidence of possible further IP issues that a buyer may use to threaten the deal or give an excuse for buyer “price chipping”
- IP value a business has committed to joint ventures or partnerships which is often undervalued and a risk of leaking out
A SWOT analysis on the key IP assets underpinning the competitive advantage of a business can inform and improve the value of business and the value of the IP assets, by recommending actions such as:
- Recording any trade secrets (e.g., an algorithm or decision tree, key data on sensor positioning, key properties of a surface material/technology, secret recipes, database architecture & analytics) that may exist, and protecting them accordingly
- Implementing a trade secrets policy in order to protect non-patentable and crucial IP (e.g. product recipes), and incorporate appropriate terms around these trade secrets into employee contracts/procedures
- Recording critical know-how in a user-friendly format (FAQs, best known method, technical libraries)
A buyer would normally value a “target” business on typical financial model for the sector (x times turnover or EBITDA) and then price chip, discounting this number for perceived risk.
By following some of the above best practices you can de-risk an acquisition for a buyer and make it easier for them to understand why they should pay a premium for your business – i.e. by giving them clear information on the IP assets that underpin your competitive advantage which are not reflected in the financials/balance sheet.
