“The challenge is that intellectual property is not always obvious.”
In M&A, attention naturally focuses on financial performance, valuation and deal structure. Yet one of the most important drivers of value is often overlooked: intellectual property.
For many businesses, intellectual property is not simply a legal asset. It underpins competitive advantage, customer loyalty and future growth. Brands, software, proprietary technology, databases, designs, trade secrets and know-how can represent a significant proportion of a company’s value.
Despite this, intellectual property is often not examined in enough detail until relatively late in the transaction process.
The challenge is that intellectual property is not always obvious. While registered rights such as trade marks, patents and designs are relatively easy to identify, unregistered rights, including copyright, confidential information, proprietary processes and goodwill, can be just as valuable. Understanding what intellectual property exists, where it sits and how it contributes to the business is therefore a critical part of due diligence.
This is where accountants can play an important role. As advisors who often have the deepest understanding of a company’s operations and value drivers, they are well placed to identify potential intellectual property assets long before a legal review begins.
Often, the most useful questions are the simplest. What drives sales? Why do customers choose this business over its competitors? Is revenue dependent on a particular brand, software platform, product design or proprietary process? Does the business own these assets, or is it relying on rights held by a founder, contractor or third party?
Where intellectual property appears central to value, further questions can be revealing. Are key trade marks registered? Who owns the software used by the business? Were appropriate assignments obtained from employees and contractors? Are there licences that are essential to the operation of the business? If a key intellectual property asset were lost, what impact would that have on revenue?
There is, however, an important distinction between recognising intellectual property and assessing its legal strength. This is where collaboration with an intellectual property professional can add real value. While accountants can identify the assets that appear to drive enterprise value, IP advisors can verify ownership, assess the scope of protection, identify infringement risks and highlight issues that may affect the transaction.
In an increasingly knowledge-driven economy, intellectual property should not be treated as a specialist consideration reserved for the final stages of due diligence. It should form part of the conversation from the outset. By working collaboratively, accountants and IP advisors can help clients maximise value, minimise risk and ensure that when a deal completes, there are no surprises about what has actually been bought or sold.
If you would like to continue the conversation, please contact the author, Rosalyn Newsome, or another member of the Business Advisor Support team.
