Summary
A manufacturing firm facing financial difficulties discovered an opportunity to turn things around through corporate restructuring. Having identified a product with significant growth potential, the firm performed what is known as a ‘spin-off’ – establishing a new entity focused solely on the product. Intellectual Property (IP) was transferred to the new company, shielding it from the parent firm’s existing liabilities. This allowed the firm to protect its innovative product while minimising financial risks.
Study
In this real-world example, a manufacturer of motorcycle accessories used a corporate restructuring strategy to secure its future viability. Through innovation, it had developed a high-performance chain lubrication system. The business recognised that the potential of this new system was being suffocated by the parent company and decided to pursue growth by launching the product under a spin-off, NewCo (a new operating entity).
Management sought guidance on identifying which assets were critical to the new product’s success and how to transfer these assets without jeopardizing the parent company’s operations. An audit was commissioned to find key assets, mitigate risks, and guide the spin-off process. This was conducted by their patent attorney firm and their accountants who facilitated the transfer of assets to the NewCo. They also needed a proper valuation of the IP considering the precarious financial position of the business.
The IP audit:
• Identified relevant IP assets underpinning the promising new product.
• Assessed shared IP and a recommended license back to the parent company.
Outcome
The IP audit and valuation enabled the company to make strategic, well-informed decisions throughout the restructuring process. The valuation showed a fair transfer price for the IP assets moving from the parent company to NewCo, while the audit provided a comprehensive inventory of the company’s IP assets. This revealed critical, yet undocumented, informal IP which was essential to the fruition of the new product.
By implementing the expert recommendations, the business strengthened its IP portfolio, bolstering the value of its intangible assets and improving its position for future fundraising and growth opportunities. The report’s recommendations were incorporated into the company’s forecasts and pitch deck, supporting its fundraising efforts.
The value of IP in corporate restructuring
This case demonstrates how strategic IP management can unlock value and ease corporate restructuring. By isolating IP assets and strategically transferring the rights to a new entity, the manufacturer safeguarded its innovation and created a corporate structure to facilitate long-term growth.
