Strategic importance of Intellectual Property in Mergers and Acquisitions
Did you know that Volkswagen purchased Rolls Royce Motor Company without realizing that they did not own Rolls Royce name and its trademark, and that name and trademark was owned by BMW, a direct competitor to Volkswagen? Seems incredulous, but this did happen, and VW purchased all rights to manufacture Rolls Royce car along with the Rolls Royce factory and staff in Crewe, UK but did not have any rights to brand it with the same name. Neither they had any engines for its car as BMW was producing engines for Rolls Royce. Rolls Royce factory in Crewe was manufacturing both Rolls Royce and Bentley cars. Eventually, after lot of twist and turns, BMW finally became Rolls Royce owner in 2003 and is now its exclusive manufacturer. VW is now sole manufacturer of Bentley cars.
So, what does this story teach you?
In any merger and acquisition proper due diligence is the key and in particular proper due diligence of Intellectual Property (IP) is a must. In absence of this, it might as well be that you miss out on something very important and strategic to your business. Mergers and acquisitions inherently are risky and given the amount of technology turnover these days, it has become even more riskier. Most of the times organizations have myriad range of products and their variants and this adds to an already complex situation. This is where the value of proper IP audit and its associated value comes into picture.
Intellectual Property assets and their due diligence, in quite a few cases, comes as an afterthought, whereas it should be the other way around. In some case it has also been found out that IP assets start getting valuated after the deal has already been done.
A pertinent question that comes to our mind is that when should we initiate IP due diligence?
My answer to this would be, that very instance when you have decided to acquire any company and its assets. There is lot of information that is publicly available for example patents, trademarks, copyrights etc. and this is a good source to initiate this activity. By the time you initiate a formal contact with the target company, you would have already done your homework and are relatively in a good position to lead M&A negotiations.
Needless to say that as the amount of importance we give to value our physical, tangible assets the same way we need to focus on the intangible assets like IP to get a fair valuation.
Bhuvnesh Sharma (email@example.com)