Buying a business with IP in mind

Property will always remain a key feature in any business acquisition search, but it is becoming more and more important to focus on property of the intellectual variety, rather than the bricks and mortar type.

Today intellectual property (IP) is an extremely valuable asset – as technology becomes an increasingly prominent part of every aspect of life (professional and private), those that have a promising or proven technological concept, design or product can immediately become an attractive acquisition opportunity. You only have to look at the huge money spent by Facebook on Whatsapp Messenger or Apple on AlgoTrim to see what IP (often technology-focused) is worth to businesses.

So when looking for an acquisition opportunity, it can often be worth looking past physical assets, stock or order books and instead explore companies that can offer a form of IP that will enhance your current business.

There has been one very good example of this recently; a couple of months ago Ecotricity bought Evance, a Loughborough-based wind turbine manufacturer, out of administration. Ecotricity, itself a provider of green energy solutions, stated that it bought the company to take its new "innovative windmill design" to market.

Evance had been 90 per cent of the way through the development of the new turbine design, which promised to improve efficiency and cut costs for small turbines, when it ran out of funds due to cuts in government funding, leading it to enter administration. Seeing the patent the company had on its promising design, Ecotricity bought the business and with it claimed the IP, thereby bolstering its own renewable energy technology portfolio. It aims to bring the product to market by the end of the year.

In this case there was a clear synergy between the two companies and at the heart of the decision was the unique and promising IP. Equally important was that the IP was officially documented; it had a patent that protected it and proved it to be more than a mere idea - this is what set it apart from buying any other business.

A slightly different example of a business attracting attention because of the documentation it holds is City TV. The Birmingham-based TV channel entered administration this month after it failed to find the financing required to get the studio and the equipment needed to launch the channel.

However, what the company did have was a licence; City TV had won a highly coveted local broadcasting licence from Ofcom after it won a competition against 57 other firms. For a TV operator or any other company with the funding for all the things a TV channel needs, this would be an excellent acquisition opportunity as the difficult-to-get licence is already in place.

Again, the IP associated with City TV, as in the Evance example, makes the business a far more attractive prospect. Therefore, for well-placed businesses who are set to capitalise on the IP on offer – in these examples another green energy provider and potentially another TV operator – this is a type of acquisition that can be extremely beneficial to propelling growth.

However, there will be complications with this type of acquisition, with IP being harder to define in value compared to physical assets. But specialist brokers and business valuation experts can help in this task. Ultimately, the important question to ask is does another business have some form of IP that can complement and/or enhance what we are already doing? If so, an IP-based acquisition could be the best way to drive a business forward.

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