HOW CAN I USE IP TO EXIT?

We have helped companies boost the sale price or valuation of their business prior to exit, which is is often triggered after an initial approach has been made to buy a business.

By identifying and cataloguing critical IP assets owned by a company, and improving the buyer’s perception of valuation through the recognition and importance of the IP assets which underpin the competitive advantage of the business, buyers’ perception of value is increased from its initial balance-sheet only calculation. Buyers often focus their pricing/valuation on the risks associated with acquisition, and in IP-rich companies those risks frequently relate to:

  • IP assets not being properly recorded or “locked down”

  • Issues with software and risks regarding use of open source code

  • Threat of key people leaving and taking critical know-how (e.g. product recipes, source code, technical specs) with them without relevant controls and safeguards in place

  • IP housekeeping issues which emerge during the process, and serve as evidence of possible further IP issues that may threaten the deal or give an excuse for purchaser “price chipping”

  • IP value in JVs or partnerships which is often undervalued and the value needs to be outlined to the purchaser

We can quickly do a SWOT analysis on the key IP assets which underpin the company’s competitive advantage, and make recommendations which can be quickly implemented to boost the valuation, such as:

  • Record any crucial trade secrets (e.g. an algorithm or decision tree, key data on sensor positioning, key properties of a surface material/technology, secret recipes, database architecture & analytics) that may exist, and protect them accordingly
  • Implement a trade secrets policy in order to protect non-patentable and crucial IP (e.g product recipes), and incorporate appropriate terms around these trade secrets into employee contracts/procedures
  • Record critical know-how in a user friendly format (FAQs, best known method, technical libraries)

Therefore, by quickly implementing some of our recommendations, a company can de-risk an acquisition for a purchaser and make it easier for them to see why they should pay a premium for the business – i.e. by focusing on the IP assets that underpin its competitive advantage. A buyer would normally value a target on typical financial model for the sector (x times turnover or EBITDA) and then price chip, discounting this for perceived risk. Our approach is to view the financial valuation is the baseline, with a necessary premium having to be paid over and above for the IP assets being acquired which are not reflected in the financials/balance sheet.

If you’d like to learn more, please feel free to give us a call.

Photo credit: Dan Paluska