Crown jewels: navigating IP in M&A

June 2025  |  COVER STORY | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

June 2025 Issue

Often referred to as a company’s ‘crown jewels’, intellectual property (IP) is intangible property that allows businesses across a range of sectors and industries to stand out and attract new customers, as well as differentiate their products or services from competitors.

The value of these assets is considerable. According to the Global Innovation Index (GII), the global value of intangibles has been growing rapidly over the last 25 years, reaching an estimated $62 trillion in 2023 (according to the latest figures). The GII also notes that the most intangible asset-intensive economies are the US, followed by Ireland, Denmark, the UK and France.

Moreover, the asset mix owned by such companies also reflects this fundamental shift: intangibles make up about 90 percent of the value of companies in the S&P 500. Analysis by the World Intellectual Property Organization (WIPO) reveals that IP and other intangibles contribute on average twice as much value as tangible capital to products manufactured and traded along value chains.

Intangible assets drive competitive advantages, innovation and economic growth, states the WIPO. For businesses, they create long-term value through the creation of a market niche, increasing revenue and profitability; for example, a company’s brand recognition can convey quality and reliability to customers.

As a result, these intangible assets contribute to increased sales and may command higher prices. The contribution of these assets can sometimes even be higher than those coming from tangible assets such as production equipment.

Determining value and risk

In an M&A context, IP assets (comprising intangibles such as patents, trademarks, copyrights, trade secrets and proprietary technologies) represent an increasingly critical component of a target company’s value, typically transferring to the acquiring company as part of the agreement.

“IP plays a crucial role in determining both the value and risk of acquisition targets in M&A,” says Mark Williams, global chief revenue officer at Datasite. “IP assets often constitute a significant portion of a company’s value and play a critical role in investment decisions and financial assessments.

“Additionally, IP valuation heavily influences transaction terms and outcomes,” he continues. “Buyers are increasingly recognising IP’s potential to generate future revenue, reduce competition and unlock new market opportunities, making it a key focus in due diligence and negotiations.”

Given its significance, a thorough assessment of the value and risks of a target company’s IP assets is essential. In its 2024 ‘Strategic Roadmap: Navigating Mergers and Acquisitions with Confidence’, Wissen Research outlines four key metrics that acquirers should consider when assessing the value and risks associated with the target company.

First is revenue generation potential. IP often represents significant revenue-generating assets for a company. An acquirer will closely examine the IP portfolio to understand its contribution to current and future income, licensing potential or market share. A strong IP portfolio will significantly allow the entity to acquire greater power in negotiations.

Second is competitive advantage. IP often serves as a competitive channel. If the target holds proprietary technologies, processes or brand value, this will increase its market attractiveness to an acquirer, especially in tech, pharmaceuticals or other innovation-driven sectors where the valuation is higher compared to other domains.

Third is market differentiation. IP helps distinguish products or services in the marketplace. For example, unique branding, patented technologies or exclusive copyrights will help the target company capture a premium market segment.

Last is strategic fit. The alignment between a company’s internal resources, capabilities and external environment, including market conditions, competition and industry trends, indicates how well the company’s strengths and resources (such as IP) align with its goals and the opportunities in the market.

“Acquirers need to clearly understand what specific IP is included in a transaction,” adds Rajesh Sharma, director of strategy and M&A at Itochu International. “This is particularly important when the acquisition is structured as an asset purchase rather than a purchase of the entire equity of the target company, which by default will transfer all the IP of the target company to the acquirer.

“Another deal scenario is when a transaction is a carve-out from a larger business,” he continues. “In such a case, if the seller has ongoing interest in the IP of the business that is being divested, then IP and licensing agreements need to be structured to protect the buyer and prevent any legal disputes. Furthermore, the buyer needs to be mindful of competitive concerns with the seller, and might want to put in place a non-compete agreement to derive full value of the IP being acquired.”

Protective remedies

When dealing with IP assets as part of a transaction, complexities, challenges and strategic considerations are the order of the day. Many of these can be navigated through thorough negotiation, while others require a more technology-driven remedy.

“Common complexities in dealing with IP assets include determining the rightful owner, especially where authorship and ownership differs, incomplete or invalid registrations, and inadequate valuation of the IP,” points out Victoria Akingbemila, an associate at G. Elias. “Jurisdictional differences can also be complex, as trademark rights are territorial and registration in one country will not extend to another. Piracy and counterfeiting of IP is also prevalent.”

To surmount such complexities requires a bold approach by buyers. As part of its analysis of how best to navigate IP issues in M&A, Wissen Research suggests the strategies outlined below.

First, conduct comprehensive IP due diligence. Before proceeding with any M&A deal, a thorough assessment of the IP assets of both the acquiring and target companies should be conducted. IP due diligence involves evaluating the ownership, validity, enforceability and potential risks associated with each IP asset.

“Some deals are fundamentally driven by the buyer’s interest in the seller’s IP,” notes Mr Sharma. “For example, in acquisitions in the biotechnology space, the buyer is primarily acquiring the patents and trade secrets developed by the target company.”

Second, identify and prioritise key IP assets. Not all IP assets hold the same value or significance. An acquirer should identify and prioritise IP assets that are critical to the success and competitiveness of the business. This may include patents covering core technologies, trademarks associated with well-established brands or trade secrets that provide a competitive advantage.

Third, implement confidentiality and non-disclosure agreements (NDAs). During M&A negotiations, sensitive information about IP may be disclosed to potential buyers or partners. To prevent unauthorised use or disclosure, robust confidentiality and NDAs should be implemented. These agreements establish legal obligations for parties and protect against unauthorised use or disclosure of sensitive IP assets.

Fourth, secure IP rights through contracts and agreements. Acquirers should incorporate IP protection provisions into M&A agreements, including representations and warranties related to IP ownership, infringement claims and licence agreements. All relevant contracts and agreements, such as employment contracts, licensing agreements and vendor contracts, should contain provisions that safeguard the company’s IP rights and prevent unauthorised use or disclosure.

“Remediating wrongful IP asset protections, involving registration, obtention of third-party consent where necessary and licensing can increase acquisition cost and complicate the transaction,” says Ms Akingbemila. “Even post-acquisition, dispute over IP transfer and ownership may arise, thus reemphasising the importance of IP due diligence.”

Fifth, monitor and enforce IP rights post-transaction. Following the completion of the M&A transaction, IP rights should be monitored and enforced diligently. Robust IP management and enforcement strategies should be implemented to detect and address any potential infringements, misappropriations or unauthorised uses of IP assets. Acquirers need to stay vigilant in protecting an IP portfolio to preserve its value and prevent any erosion of competitive advantage.

Sixth, educate and train employees. Effective IP protection requires the active participation and awareness of employees at all levels of an organisation. It is important to educate and train employees about the importance of IP, their obligations regarding confidentiality and IP protection, and best practices for safeguarding sensitive information. Fostering a culture of IP awareness and compliance minimises the risk of inadvertent disclosures or breaches.

Lastly, seek legal and IP expertise. Navigating the complexities of IP law during M&A transactions requires specialised expertise. Experienced legal counsel and IP professionals can provide guidance and support throughout the process. Their expertise can help identify potential risks, negotiate favourable terms and ensure compliance with relevant laws and regulations, safeguarding IP assets and maximising their value.

“To mitigate many of these challenges, dealmakers are turning to AI-driven solutions for help,” says Mr Williams. “AI tools are already being used for M&A target identification, automating due diligence and leveraging predictive analytics to improve efficiency and accuracy. In fact, one in five dealmakers are currently using generative AI in the M&A process, and the majority of global dealmakers have identified AI adoption as their top operational priority for this year.”

Manipulative and dishonest

In the world of IP-related M&A, instances will inevitably arise where an individual or individuals attempts to garner success through manipulative and dishonest business strategies.

“One example would be a traditional company investing in a technology company through private equity funding, thus acquiring its pertinent software,” suggests Similoluwa Oyelude, a partner at G. Elias. “The acquirer then discovers, post-acquisition, that the company’s brand trademark was registered under the independent contractor that had designed the logo.

“So, despite acquiring the core technology, the acquirer lacks the legal right to use the brand logo,” she continues. “This may result in the institution of infringement claims and a potential rebranding – all because the acquirer focused heavily on tangible assets during due diligence, neglecting the ownership and protection of key intangible assets.”

In another example of IP-related wrongdoing, in this instance concerning the theft and attempted theft of trade secrets, in January 2025 a trader was accused of stealing source code developed at the cost of $1bn to his employer, a global quantitative trading firm. In its indictment, the FBI stated that the defendant “allegedly stole and unlawfully shared private proprietary information to clandestinely develop his own firm in collaboration with his employer’s competitors”.

“In cases such as this, due diligence is essential to ensuring adequate protections are in place to protect IP and mitigate deal risks that might emerge post-acquisition,” advises Mr Sharma. “Another important IP issue to address in due diligence is when the IP developed by employees and contractors has not been clearly assigned to the target company, which can lead to litigation after the transaction is completed.”

Today’s vital asset

An increasingly vital asset in today’s economy, IP is integral to both corporate valuation and M&A. As businesses continue to navigate the complexities of the global market, strategic management and valuation of IP will remain essential to achieving competitive advantage and driving growth.

“We live in the age of a knowledge economy,” asserts Mr Sharma. “The value of a company is increasingly concentrated away from its hard assets, such as factories and machinery, and toward intangible assets, whether it be software, patents, trade secrets or copyrights.

“The arrival of AI-generated content in a major way poses another challenge,” he continues. “If a company is using AI technology to generate content that is material for its organisation, the buyer needs to carefully review ownership issues to protect such content.”

However, despite globalisation and an increasing reliance on technology, there are those who believe that the value companies can generate through their intangible assets should not come at the expense of their tangible asset counterparts.

“IP assets will increasingly be factored into M&A transactions as a key contributor to a target’s overall value,” observes Ms Akingbemila. “In industries such as technology, media and finance, IP, brand equity and customer data often drive more value than tangible assets like physical infrastructure.

“However, regardless of the growing recognition of IP assets, they cannot and should not outstrip the value of a target’s tangible assets,” she adds. “Ultimately, both tangible and intangible assets must be prioritised.”

As the hidden gems that power knowledge-driven global economies across the globe, the burgeoning role of IP requires dealmakers to perform a series of robust checks and balances amid an already rigorous M&A market. Such action ensures that the next acquisition is built on a solid foundation of ownership, documentation and clarity.

© Financier Worldwide

BY

Fraser Tennant