Intellectual property is the lifeblood of the Tech industry. Intellectual property includes patents, trademarks, and copyrights. The primary benefit of M&A to tech companies is that it allows immediate access to new technologies without having to build from scratch. More specifically, Tech companies engage in M&A activities to gain ownership of the intellectual property associated with the target company. Therefore, the value of the target company is directly affected by the value of it’s IP.
When conducting IP due diligence, it is essential to consider how to protect the IP value to get the highest value of the deal. To protect the value of their IP tech companies, consider 1) the credibility of their IP and 2) branding of their IP.
No one will complete a transaction with a company they cannot trust. It is important to have a full understanding of the IP held by the target to remain credible. There is no place for embellishments in IP heavy transaction. Claims of “patented” status when the IP is only “patent pending,” may make the deal more enticing to buyers on the front end of the deal. However, the deal will be placed in jeopardy when the potential buyer learns of the true patent pending status. The buyer may either view the target company as untrusty worthy for making false claims or as unprofessional for failing to uncover the patent status during the due diligence process.
It is essential to focus on the branding of IP to drive up perceived market value. With the rise of silicone value, public awareness has also risen for tech companies. Making brand awareness is an important practice because it can restrain or increase the value of IP. For a positive example of brand awareness driving up value, we can look to Facebook’s attempted acquisition of SnapChat in 2013, for $3 billion. Snapchat had no revenue at this point, and the value was based on its positive social media perception as well as its technologies. Conversely, Facebook itself felt the adverse effect of public opinion on value when their stock value dropped 7% during a highly publicized data privacy scandal in 2018.