A buyer’s guide to intellectual property considerations in M&A

Intellectual property (IP) plays a central role in UK M&A transactions. Often (perhaps increasingly), acquiring intellectual property can be the main motivation behind a deal and many deals solely involve the acquisition of a company’s IP. In the increasingly digital, tech-driven world, it is now often the case that a company’s intellectual property will be worth a similar amount, or considerably more, than its physical assets. [NOTE: If you are not a BSR member, you can click here to download the full report as a PDF]

However, even in deals where IP is not the main consideration, it is still a vital consideration in due diligence, valuation and post-deal integration and, perhaps most importantly, one of the main issues for dealmakers to navigate from a legal standpoint. Deals in which IP issues are not dealt with appropriately can face severe risks and even be scuppered entirely.

In order to ensure that deals progress smoothly and successfully from beginning to end, dealmakers need to be aware of the issues and risks surrounding IP, the role it plays in deal structure, valuation, due diligence and integration and the various factors relating to licensing, litigation, ownership and compliance.

These things are integral to M&A at any time, but perhaps more than ever as more deals involve distressed companies (in which intellectual property and other assets may be the only consideration) and innovative startups (where the buyer’s main motivation in acquiring the company is access to its IP).

Defining IP
Intellectual property encompasses intangible assets that hold significant value for companies. These assets include patents, copyrights, trademarks, trade secrets, and industrial designs. Patents protect inventions and processes, copyrights safeguard original works of authorship, trademarks establish brand identity, trade secrets secure confidential information and industrial designs preserve the unique visual aspects of products.

IP assets are essential for businesses as they provide a competitive edge, enhance brand recognition, and contribute to revenue generation. Patents, for instance, allow companies to protect their innovative technologies, preventing competitors from replicating or profiting from their inventions. Copyrights enable creators to control the use and distribution of their artistic or literary works, ensuring they receive appropriate compensation for their creations.

Trademarks play a vital role in distinguishing products or services in the marketplace, fostering consumer trust and loyalty. Trade secrets, such as proprietary formulas or business strategies, give companies a strategic advantage by safeguarding confidential information from competitors. Industrial designs protect the aesthetic appeal of products, preventing unauthorised imitation and preserving brand integrity.

Moreover, intellectual property licensing offers opportunities for companies to monetize their IP assets through partnerships and collaborations. By granting permission to other parties to use their intellectual property in exchange for royalties or fees, businesses can generate additional revenue streams and expand their market reach.

What is the structure of the deal?
Fundamentally, different types of deals raise different issues relating to IP. So, the first step for dealmakers when considering how IP will factor into their deal is to define what the structure of the deal is and do the requisite research into their legal obligations relating to IP.

Asset purchases will often involve intellectual property as a major part of the deal. Recent examples of this include several deals done by high street retailer Next since the COVID-19 pandemic, in which it has acquired the IP and selected assets of distressed brands such as Cath Kidston and Made.com. An even bigger deal was online clothing retailer Boohoo’s acquisition of the brand and website of collapsed department store giant Debenhams, in a deal that left out the company’s underperforming network of physical stores.

More recently, Arquer Diagnostics, a cancer testing company, fell into administration. While six staff were made redundant and the company appears unlikely to be rescued as a going concern, administrators identified the company’s innovative and potentially groundbreaking research as a major intellectual property asset and predicted strong interest from potential buyers.

In such a transaction, the buyer will firstly need to review the ownership of the intellectual property involved, as well as any related contracts or licences, and how this will factor into the transfer of the assets during the deal. Doing this will ensure that ownership is clearly defined, preventing one of the major hiccups that could impact the deal, and that all the relevant intellectual property is included in the deal. Once this is done, buyers will require assignment agreements in order to transfer ownership of the intellectual property rights when the deal is completed.

Such purchases could also take the form of carve-out deals, in which a division of a larger company is acquired in order to gain access to its IP assets. In such a scenario, the buyer will need to navigate the transfer of ownership with relation to licensing arrangements with the selling company and, potentially, IP-related agreements that continue into the post-deal period and the ongoing relationship between buyer and seller.

In merger deals, in which two companies form a new entity, and acquisitions, in which one company acquires another outright, can raise different concerns. Fundamentally, buyers will need to consider the same issues regarding transfer of ownership, including assignment agreements, for intellectual property assets that are involved in the transaction, with the issue becoming more about how different IP portfolios and competing IP strategies are integrated and consolidated.

In mergers or acquisitions in which the intellectual property assets are being integrated or acquired wholesale, then transfer of ownership will be the main concern. However, if certain IP assets are not considered as part of the deal, or in cases where IP strategies aren’t aligned, then the parties involved in the transaction will need to consider and decide how the relevant assets can be integrated and others can be streamlined or potentially divested.

Failure to pay due attention to these issues can cause considerable problems further down the line, ranging from legal disputes to integration issues that could lead to costly litigation and potentially negatively affect the value of the deal and the success of the post-deal integration process. IP ownership, licensing arrangements, and dispute resolution mechanisms must be carefully negotiated to protect the interests of all parties involved while facilitating the exchange and use of IP assets.

Determining ownership
The most important aspect of assessing intellectual property as part of a due diligence process is determining ownership. This is an issue that can severely impact M&A transactions and buyers will be relying on the selling company having kept accurate documentation of the rights surrounding IP, including licences, trademarks, agreements, assignments, disputes and consents.

If ownership of IP has not been properly recorded, then the deal can be held up, the buyer may struggle to assert rights over the IP post-deal and litigation may follow that can be costly, complex and long-winded. Lack of clear documentation can result in disputes over ownership and this can be a particularly problematic issue in deals involving IP that was developed informally or collaboratively by numerous participants involved in the founding of an innovative startup.

In such instances, trying to determine ownership of the IP can be a gruelling and difficult process. This demonstrates why ownership should be the first area buyers look at during due diligence, as scenarios in which ownership cannot be reliably determined could make it advisable for the buyer to engage expert advice or even abandon the deal.

Even if ownership records have been kept diligently by the vendor, navigating ownership can still be a highly complex process, for example in deals such as carve-outs, where IP relating to the acquisition target may be owned by a parent company or another subsidiary, or acquisitions of companies involved in joint ventures, where multiple companies may have collaborated on the IP and ownership is shared (or potentially even already disputed).

According to law firm Pinsent Masons, the worst-case scenario when it comes to IP ownership in M&A concerns deals in which the ultimate owner is not part of the target company. This might occur in deals involving companies that have suffered insolvency, before being rescued, where ownership may still be registered to an insolvent or dormant business, or where IP rights still belong to an individual, such as a former employee, who is no longer connected to the company.

Pinsent Masons identifies three common occasions in which IP is ultimately found to be owned “in the wrong name”:

Firstly, scenarios where IP is registered to an individual, rather than the company. This can be common at young companies where IP has been developed at an extremely early stage, founders have registered patents etc. in their own names and then either not got around to formally transferring ownership to the company or chosen not to.

Secondly, where IP has previously been acquired from a separate third party (e.g. during an M&A takeover) and transfer of ownership has not been completed or was not completed within a required timeframe.

Thirdly, instances where IP has been transferred within a larger group as part of a restructuring or reorganisation. The company involved may not have considered recordal (the process of updating information about IP rights in official databases) necessary as it was still held within the same group. While this may not have posed an issue for the vendor at the time, it can become a major issue when the IP involved is later part of a disposal.

IP Valuation
One of the most important aspects of IP when it comes to M&A is determining its valuation – which is the natural next step after ownership has been determined. As well as being integral, this is also one of the most difficult stages of the process.

There are a wide range of factors that can impact valuation, including tangible factors such as exclusivity, the lifespan of any rights the vendor holds on its intellectual property, how rights around ownership have been maintained and the past financial performance of the assets.

However, there are also valuation factors that are more difficult to quantify, but which could, nonetheless, impact the ultimate valuation. For example, what is the market demand for the service or function that the IP fulfils? Intellectual property held by a company may be experiencing strong demand as a result of external factors, but industry-specific and broader macroeconomic trends fluctuate and it can be problematic to value IP based on its level of demand at the time of the deal.

For similar reasons it can also be tricky to assess the market potential and commercialisation opportunities of intellectual property, with factors such as market size and growth potential all subject to change based on a variety of external influences. Ultimately, of course, the uncertainty around these aspects of valuation may themselves play a significant role in how IP is valued and could potentially lead to points of disagreement between buyer and seller.

Other factors to consider will be what stage of development and commercialisation the IP is at, which will play a significant role in assessing its potential for further growth and the strength of market demand. Early-stage IP assets, such as new patents or prototypes in the early stages of development, may be enormously innovative and could potentially see huge growth. However, their lack of maturity or track record of success means that there is a considerable amount of risk associated which will impact the valuation.

Well-established IP, on the other hand, may be less innovative or transformative, but will see its valuation bolstered by demonstrable past success and a proven track record of revenue generation. For mature IP assets, buyers should look at factors such as financial performance, historical revenue and projected cashflow to help form an idea of how it might perform going forward and its potential valuation.

Buyers will also need to consider and examine a range of potential risks when assessing the value of IP. Some of these may be inherent (such as the uncertain market success of early-stage assets) or have been uncovered when determining the structure of the ownership of the assets, but there will also be others, such as the potential for infringement on other copyrighted or patented IP and regulatory compliance. If there is a risk that IP involved in a transaction is at risk of regulatory action or litigation then this will play a major role in valuation.

In distressed transactions, IP is often one of the main assets that opportunistic buyers seek to pounce on. While the IP may not have been a primary factor in the former owner’s collapse (such as in the case of Cath Kidston, which had a strong, established brand, but collapsed amid declining high-street spending and the impact of COVID-19), buyers acquiring distressed assets will still need to be rigorous in analysing whether, for example, a lack of market demand was a factor and whether this impacts the marketability and revenue generation potential of the assets in question.

Additionally, buyers should also bear in mind elements such as technological obsolescence and threats from other competitors. This will require keen attention, as IP assets may at first appear innovative or to have significant potential for growth and revenue generation, but ultimately prove to be backed up by outdated technology (for example, antiquated computer systems that would make it difficult to scale up an asset post-commercialisation) or be targeting a market segment that is already served by a successful existing product.

Finally, of course, perhaps the most important element in valuing IP is its strategic importance to the buyer. If the IP in question is a major factor in the buyer’s efforts to acquire the business then this will be reflected in a higher valuation (and, it goes without saying, will be the main thing dictating the valuation if IP is all the buyer is seeking to acquire).

If, for example, the IP will complement the company’s existing offering, play into its strategic objectives, give it a competitive edge or significantly bolster its technological capabilities, then the assets will command a higher valuation as a result of their strategic relevance and the potential they have for creating value and driving revenue when integrated.

Naturally, buyers should play their cards close to their chests and will be keen not to appear desperate to acquire the assets, which would weaken their bargaining position and tempt the seller into significantly ramping up their asking price. However, if IP is going to be of significant strategic importance, then they will need to be prepared to offer a fair price.

Conversely, if a company is seeking to acquire another business that holds IP which is of negligible strategic importance to the buyer, then they are likely to place a lower valuation on these, even if the vendor considers them to be of significant value.

Instances such as this, as well as other scenarios where vendors and buyers differ considerably in their valuation of IP, will require careful negotiation and for each side to demonstrate why and how they have come to their valuation. This is one of numerous reasons why it is highly advisable to engage the advice of valuation specialists. Not only to help gauge things such as the IP’s market demand and potential and spot potential risks, but also to provide buyers with demonstrable reasoning behind their valuation when it comes to negotiations.

IP due diligence: A brief checklist

During an M&A transaction, conducting thorough due diligence on intellectual property (IP) is crucial to identify potential risks, liabilities, and opportunities associated with the target company's IP assets. Here are some main due diligence points related to IP:

1. Ownership and Title: Verify the target company's ownership or rights to the IP assets, including patents, trademarks, copyrights, and trade secrets. Review relevant agreements, assignments, licences, and registrations to ensure clear and valid title.

2. IP Portfolio Analysis: Assess the scope, strength, and value of the target company's IP portfolio, including the number of patents, trademarks, copyrights, and trade secrets, as well as their market relevance, expiration dates and geographic coverage.

3. Licence Agreements: Review all existing licence agreements, sublicenses, assignments, and other IP-related contracts to understand the scope of licensed rights, any restrictions or limitations, royalty obligations, termination provisions, and change of control provisions.

4. Litigation and Disputes: Identify any ongoing or potential IP litigation, disputes, claims, or threats, including infringement actions, opposition proceedings, or challenges to the validity of IP rights. Assess the potential impact on the target company's business and valuation.

5. IP Enforcement and Protection: Evaluate the target company's strategies and efforts to protect and enforce its IP rights, including measures taken to prevent infringement, maintain confidentiality of trade secrets, and monitor third-party use of IP assets.

6. IP Compliance and Due Diligence: Review the target company's compliance with applicable IP laws, regulations, and industry standards, including registration requirements, maintenance obligations, and disclosure obligations.

7. Cybersecurity and Data Protection: Assess the target company's cybersecurity measures, data protection policies, and compliance with relevant privacy regulations, such as the General Data Protection Regulation (GDPR).

8. IP Assets in Contracts: Identify IP assets embedded in contracts, such as technology licences, joint development agreements, supply agreements, or collaboration agreements, and assess the implications of these arrangements on IP ownership, licensing rights, and future obligations.

9. Employee and Consultant IP: Review the target company's policies, agreements, and procedures regarding employee and consultant inventions, confidentiality obligations, non-compete clauses, and assignment of IP rights.

10. IP Valuation and Tax Implications: Evaluate the target company's IP valuation methodologies, historical IP-related expenses, amortisation schedules, and potential tax implications associated with the acquisition, transfer, or licensing of IP assets.

By addressing these due diligence points effectively, acquirers can better understand the risks and opportunities associated with the target company's IP assets, negotiate favourable terms, and mitigate potential post-acquisition liabilities.

Post-deal integration – Maximising value
Once the acquisition has been completed, it's not simply a case of sitting back and watching the newly acquired IP generate value, there are a significant number of steps that need to be taken in order to integrate the assets successfully and ensure that potential synergies are realised and the deal creates value.

Firstly, buyers should take a detailed overview of the acquired IP assets in order to identify what the crucial assets are and how they can be incorporated into the company’s strategic objectives. In deals in which acquiring IP was a major motivator, buyers will of course have been aware of which assets were most important to them, but the post-deal period will provide the opportunity to think strategically about how they can be incorporated going forward.

In the event that the buyer has acquired a portfolio of IP assets, a strategic plan should focus on which ones should be prioritised, potentially by engaging specialist advice on which have the highest market demand, technological innovation, potential for revenue generation and competitive advantage. Truly valuable IP could be something that a company builds its growth strategy around for years to come.

It will be crucial to plan for how IP can be integrated on an operational level. For businesses of a certain size, the post-deal period may involve a dedicated integration team that can focus entirely on goals, timelines and milestones for the integration of newly acquired assets. However, even for smaller buyers, an integration plan laying out what the buyer hopes to achieve through the integration and when it hopes to hit certain milestones will be paramount – both for codifying these goals and for checking progress against them as the process unfolds.

An early step in the integration process will be identifying how the differing IP strategies and processes of the buyer and the vendor can be aligned. Consistency in how IP is managed and utilised will likely be necessary going forward, so buyers should seek to ensure that factors such as maintenance, enforcement, licensing, and monetization are aligned in order to properly integrate new assets and optimise value.

This integration will then extend to any relevant management systems and technologies. Acquired IP may run on a different operating system or utilise separate reporting technology, meaning that significant work is required in the post-deal period to integrate the assets properly. Determining the process required for technological integration, implementing tools and establishing timeframes and responsibilities can be incorporated into the initial integration plan.

Following the acquisition, it is essential to review and update all IP contracts, licences, and agreements associated with the acquired assets while simultaneously implementing measures to protect and enforce these rights. This involves identifying any inconsistencies or obligations that may require renegotiation post-acquisition and ensuring that necessary approvals are obtained for the transfer or assignment of IP rights. Failure to record the assignment of these IP rights can result in a raft of legal issues further down the line and, in the UK, is something that should be recorded within six months of the assignment.

Additionally, a proactive strategy should be developed to safeguard the newly acquired IP assets against infringement or unauthorised use, employing measures such as monitoring for potential infringements, enforcing IP rights through litigation if necessary, and defending against challenges to the validity of these assets.

Another important step in the post-deal period will be ensuring that staff are trained and educated. This is a process that can go both ways and should involve significant knowledge-sharing and collaboration. Existing employees, stakeholders and partners may require training and education on the newly acquired assets, their value proposition, and best practices for IP management. Buyers should ensure that relevant personnel are knowledgeable about IP rights, policies, procedures, and compliance requirements. Incoming employees from the vendor, meanwhile, may require training on things such as management systems, IP strategies and technology at the buying company.

Collaboration and knowledge-sharing will not only be important for integration, but also for leveraging the capabilities of the newly acquired assets. During the post-deal period, buyers should place a strong onus on collaboration, with different knowledge bases more likely to identify opportunities for market expansion, commercialisation and revenue growth, as well as further innovation and development of the IP assets.

This will be an important early building block in forming a medium to long-term plan for commercialisation and monetisation opportunities that the buyer can undertake during and after the integration process. Strategies involving the newly acquired IP assets could include licensing, partnerships, joint ventures or further product development. Identifying potential revenue streams, market segments, and business opportunities that can be leveraged to extract value from the integrated IP assets early on will help to ensure that the full potential of the acquisition is realised.

Finally, as with any integration process, buyers should continuously be monitoring and evaluating the progress of their IP integration, utilising the goals, timelines and performance metrics established in their integration strategy. Regularly reviewing the performance of the integrated IP portfolio, assessing their impact on business outcomes and revenue will help to ensure that the buyer is fully in control of the process and able to make adjustments as required to respond to challenges and, ultimately, optimise the results of the integration process.



By conducting rigorous due diligence, on areas such as IP ownership, valuation and market opportunities, and strategically planning out and executing a comprehensive integration strategy, M&A buyers will be well placed to unlock value through acquisitions of intellectual property assets.

The process is not without risk, but by proceeding methodically and engaging specialist advice before, during and after the acquisition process, buyers can navigate these risks and successfully acquire IP assets that help them to drive innovation, pursue their growth strategies and strengthen their competitive edge.


Find out how intellectual property can be a vital exit asset for outgoing business owners

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