M&A or mergers and acquisitions is a very heated topic in the business world nowadays. M&A projects within a country or multi-countries got accepted, signed, and started every day with billions of USD in play. In this article, we will discuss how IP will take a crucial role in the success of M&A deals and what businesses need to know about the intertwining between M&A and IP.
Some notes about M&A
M&A is an acronym for the terms Mergers and Acquisitions. M&A is an activity to gain control of an enterprise through a merger or acquisition deal between two or more businesses to own part or all of that business.
Merger is an association between businesses of the same size and give birth to a new legal entity. All assets, common interests, rights, or obligations of the merged or acquired enterprise will “return to” the merging enterprise. The merged enterprise will own all the assets, interests, rights, and obligations of the merged enterprise. A merging deal is essentially two businesses linked together for common interests.
Acquisition is a form in which a large business acquires smaller and weaker businesses, and the acquiring business retains its old legal status. The acquiring enterprise is entitled to legal ownership of the acquired enterprise. The acquiring enterprise is entitled to legal ownership of the acquired enterprise.
Status of M&A in the world
In 2021, mergers and acquisitions (M&A) activities across the globe recorded a staggering 5.9 trillion USD in value. Although somewhat lower compared to the same period in 2021, in the first 7 months of 2022, according to the report in M&A activities by the BCG, the world has recorded a slightly more than 22,000 M&A deals, with a total value of 1.85 trillion USD.
The USA is still the largest M&A market in the world, accounting for 30% of global volume and approximately 50% of global value.
Regarding industry, according to BCG, the technology sector is still the current most active sector in M&A, especially software and internet services due to the ever-growing, booming nature of the 4.0 era. Next is energy, primarily oil and gas, and health care with pharma and biotech.
The decreasing trend of M&A worldwide is not without reason, per se the Russian-Ukraine conflict leading to most Russian companies and investors exiting their investments in Western countries. Nonetheless, the most obvious cause is due to the Covid-19 pandemic that started in 2020 and still rampaging nowadays, affecting the deals between businesses.
However, as per the PwC report on Global M&A Trend in 2022, M&A volumes and values tend to decrease during times of uncertainty and market volatility and rise during periods of economic growth and favorable markets. Therefore, now, as the Covid-19 pandemic has slowly been controlled in most major M&A countries like the USA, UK, China, etc. the world market will likely see an increase in M&A trend upwards, both in volume and value, back to strong pre-pandemic levels, when M&A activity averaged 50,000 deals per year from 2017–2019, even higher as the deals in 2020-2022 temporarily stopped would be resolved in 2023-2025.
Intellectual Property and data privacy will play a huge role in the coming period within M&A deals and transactions. Consequently, to get the upper hand in the M&A market, businesses need to take a closer and more careful notice of the matter of IP protection and obligations.
Intellectual Property’s role in M&A deal
As mentioned above, the technology sector is currently the most active sector in M&A deals. Within the IP world, the M&A deal of technology can also be known and related as a technology transfer matter, which is of a linked nature with Intellectual Property.
Although technology transfer has 2 most major aspects which are Intellectual Property and technology, science aspect, many experts have agreed that when dealing and handling with a technology transfer case, or technology M&A deal, Intellectual Property is of the core nature that needs depth knowledge and expertise.
Not just in technology but in other top sectors of M&A like pharmaceutical and energy, IP also plays a huge role, even critical to an M&A deal’s success. This fact is acknowledged by many experts in the business field as well as in the IP field.
The IP aspect that businesses dealing with M&A should learn about is the IP portfolio. Different from normal individual IP assets, an IP portfolio is a set of IP assets like a trademark, patent, copyright, etc.
As a business can’t just work on a one-by-one basis, meaning there is just a straight line and no branches. An effective, functional business/enterprise must work with the combination of many aspects. For IP, it is similar.
Every company has its unique name. Once the merger deal is made, the merged company might need to change its name or remain the same. However, the new, merging company will be made a new, unique, never before existed.
An example of a typical merger deal is when Exxon and Mobil combined and merged into the ExxonMobil corporation.
The name Exxon and Mobile standing alone might have been protected with trademark. However, the new name ExxonMobil might not. Therefore, it is necessary for the new company to quickly register the name before other squatters did.
That is trademark. For patent, as the patent-protected invention is registered under the old company’s name, when they merged, the owner of the new company will need to take out the necessary procedure to change the patent owner’s name, as well as other necessary procedures.
Overall, the focus on the IP portfolio should be the IP aspects that may change or impact the business’s activities or future expansion. This can change depending on the type of company.
Not just the need to register or change the name of ownership but other small details also contribute to a good IP portfolio. According to Joyce Tan, managing director at Joyce A. Tan & Partners in Singapore, the focus of a company can be varied as the resources of every company is limited.
For a manufacturing firm, the IP assets sought should be patent registrations for the key technology in the countries where the enterprise has or plans to establish a production base. A social media account or online market platform, as well as proof of trademark registrations over these names in major countries, might be considered IP assets for an e-commerce corporation.
Important factors of IP in M&A deals
IP is important. However, what are the methods needed to do to make that fact clearer and have more impact on business development?
One of the methods suggested by experts is IP due diligence.
When an investor intends to invest in a business or considers buying and selling, merging with another entity (M&A), serious research and careful review before making the deal will bring give investors confidence when implementing and achieving success from that deal.
One of the basic reasons leading to the failure of investment deals as well as M&A is the lack of information of the parties about the other business – the partner that they/we are going to cooperate with. IP Due Diligence can be understood as “in-depth appraisal regarding Intellectual Property” that will provide the most accurate data on the operation and efficiency of the business regarding its IP assets so that the buyer can determine the value of the business and identify the risks or latent risks.
IP due diligence in a sense can be interpreted as more focus on normal due diligence, as it only deals with the IP aspect of the businesses, not the entire activities of each company. However, not because of that should IP due diligence be considered of any less value as the result of IP due diligence may be of significant impact, due to the fact that for some companies, most of their resources are divided and concentrated in these intangible properties.
On the other hand, for cross-national cooperation, due to the fact that IP assets are normally protected within a country’s jurisdiction, except for copyright with the Berne convention. The copyright is protected according to the Berne Conventions’ signed territories so it is on a multi-national basis. However, trademarks, patent, industrial designs are usually protected within the country that has granted the protection decision to the applicant.
Therefore, when 2 or more businesses from different jurisdictions collaborated and merged, or one company acquired another company, it is important to note the difference between the IP law of the involved countries.
However, not all companies, even when in cooperation, are willing to provide full details on their assets and resources. Accordingly, businesses will need experts in the matter of Intellectual Property to assist them in finding and checking the validity of the documents provided.
Consequently, IP lawyers and attorneys should be part of M&A negotiations to provide their in-depth knowledge of the IP problems, most importantly to check the honesty and validity of the documents and the impacts, and hidden details of the IP assets that a party might want to hide or give out vague explanations.
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