Mergers and acquisitions (M&A) are deals in which the ownership of a business is transferred or consolidated into other business entities. As large amounts of capital are exchanged, M&As can be incredibly lucrative for the parties involved. But as with all things in contract law, crossing your t’s and dotting your i’s can mean the difference between a successful deal and disaster, particularly when dealing with intangible assets like intellectual property.
Simply put, you need a trusted partner on your side that can provide critical investigation, examination, and analysis of your business transactions to ensure they are in your best interest. At our firm we have learned that preparing a buyer or seller for every facet of a potential deal is essential for them to be able to make the most informed business decision. The preparation is a process that we have conducted many times and fine tuned throughout the years.
What is Due Diligence?
Due diligence is the process of collecting and analyzing information before making a decision or conducting a transaction. It is essentially fact checking. From an intellectual property perspective, it is the process of identifying and gathering information on rights included in the transaction and then determining if that this information is complete and correct.
Why is Due Diligence Important?
Due diligence is essential because it assists decision makers in understanding the nature of the deal, the risks involved, and whether the decision made is the best fit for them. If a buyer or seller becomes aware of a potential risk, then either party can create a plan on how to protect themselves.
Sometimes, this can lead to a re-negotiation to more beneficial terms for the party that is found to be taking on more risk. Other times, a critical discovery during the due diligence phase of a merger or acquisition can put a stop to the entire deal.
Due Diligence in Practice – A Case Study
Our client was negotiating to acquire rights in a patented product, while the seller was retaining the rights to a closely related product. Our client had plans to expand markets for the product and to improve certain aspects of the product.
The seller included in the sales agreement a list of the patents it was proposing to include in the deal . During due diligence, we confirmed that the listed patents covered the product, but we also identified numerous other US patents and applications covering the related product.
We noticed a problem with one of the retained pending applications. The claims and drawing were not directed to the product our client was purchasing, but the application included a single “incorporation by reference” sentence referencing a now abandoned application. The abandoned application addressed the product our client was purchasing. The effect of this “incorporation by reference” would allow the seller to file a new continuation application incorporating the product. While this continuation would not have prevented our client from continuing to offer the patented product, it could have prevented them from improving upon it – essentially they would have been boxed in.
The above issue was an oversight on the part of the seller and it was resolved amicably. Had it not been identified during the due diligence, and had the parties not been so accommodating, the new continuation patent could have been a serious problem for our client and its development plans.
Due Diligence at IpHorgan
At IpHorgan, we have decades of experience conducting due diligence on behalf of purchasers and sellers. During 2021 alone, we executed due diligence in deals with a cumulative value of over $3,000.000.000 (three billion dollars).
Most of the time we act on behalf of clients whose portfolios we already know, but often we act for buyers who engage us exclusively for due diligence; they prefer to have us perform the review and analysis from a third party perspective and to have their regular teams interpret our findings for the business. Whatever your preferred method of operation, we are here to ensure that after diligence is completed, you go into any deal armed with the best possible information.
Need a partner you can trust to do the proper due diligence for an upcoming transaction? We are here to help. Contact us today to get started.
At IpHorgan, we offer you insight that can only be acquired and meticulously developed during our 15 year history as a team with over 200 years cumulative professional experience working on intellectual property transactions with businesses in nearly every sector of the U.S. and global economy.