IP DUE DILIGENCE

KEY ISSUES FOR M&AKEY ISSUES FOR M&AFROM A VALUE PERSPECTIVEFROM A VALUE PERSPECTIVE

FERNANDO TORRES, MSCFERNANDO TORRES, MSC

IPMETRICSIPMETRICS®®

TOPICS

Public IP identification and value

Quality, hierarchy and value elements

The valuation process

IP value enhancement

FIRST STEPS: IDENTIFY THE INTANGIBLES

Internally generated intangible assets or intellectual property are expensed or recorded at historical cost

Acquired intangibles and IP reported as allocated at purchase date

Intellectual property must be stratified into core and peripheral categories

Not all intangible assets are intellectual property

Not all intellectual property may be at the core

Peripheral portfolios may be monetized

INTELLECTUAL PROPERTY

INTANGIBLE ASSETS

IDENTIFY IP PORTFOLIOS FOR EXTENSIONS

Vertical and horizontal

Out-licensing

Spin-off

Analyze quality of trademark IP

Relevance to current/future business

Relative strength analysis

Potential infringement analysis

ANALYZE IA/IP PORTFOLIO QUALITY

Forward/backward references Breadth of claims set Challenge / infringement record Trade secrets procedures and

safeguards Knowledge bases Below-market contracts

STANDARDS OF VALUE Fair market value – FMV –

The price at which property would change hands between a willing buyer and seller, when neither party is under compulsion to transact and both parties have reasonable knowledge of relevant facts

IRS purposes, hypothetical transaction Fair value – FASB IFRS –

The amount at which an asset could be bought or sold in a current transaction between willing parties, other than in a forced or liquidation sale

GAAP, specific synergies

VALUE OF IP IN USE Value to (hypothetical) licensee

Value to (potential) licensor

Anticipated growth / decline

Reserve value

Blocking value

Monopoly value

Out-licensing

Core IP vis-à-vis Peripheral IP IP holding company

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