When companies’ merger or acquisitions (M&A) take place, it’s not just balance sheets, revenue projections, and market share that attract investors. Increasingly, Intellectual Property (IP) is at the centre of these deals. After all, in a world driven by innovation, IP assets often outweigh physical ones in value.
But here’s the catch—not all IP is created
equal, and not every company has its IP house in order. That’s where IP due diligence comes in. For investors and acquirers, it’s the process of peeking
behind the curtain to assess whether the intellectual property portfolio truly
holds the value it claims.
Let’s break down what really matters and what
recent deals teach us.
Why IP Due Diligence Matters in M&A
Imagine buying a house without checking
property rights, land disputes, or building approvals. Sounds risky, right? The
same applies to acquiring a company. Without solid due diligence, an acquirer
could inherit lawsuits, ownership disputes, or worse—worthless IP.
Key reasons IP due diligence is critical:
- Ownership
clarity: Ensures the target company actually
owns or has valid rights to use its IP.
- Market
advantage: Determines whether IP gives the
company a real competitive edge or is easily replicated.
- Risk
identification: Uncovers potential
infringements, licensing restrictions, or ongoing disputes.
- Valuation
accuracy: Helps in assigning fair value to the
acquisition.
What Investors Really Look For
When investors dig into a company’s IP
portfolio, they aren’t just ticking boxes. They’re evaluating the strategic and
financial impact of that IP on future growth.
Here are the main checkpoints:
1.
Clear Ownership and
Registrations
o Are
patents, trademarks, and copyrights registered in the company’s name?
o Are
there any co-ownerships that could complicate usage rights?
2.
Strength and Quality of
Patents
o Are
patents enforceable and free of legal challenges?
o Do
they cover core technology or just peripheral features?
3.
Freedom to Operate (FTO)
o Can
the company use its IP without infringing on others’ rights?
o Are
there licenses or royalties that might eat into profits?
4.
Trademarks and Brand Value
o Do
the trademarks hold strong recognition in the market?
o Any
lookalike disputes or opposition challenges?
5.
Trade Secrets and Confidential
Information
o Are
processes, formulas, or algorithms protected?
o Are
there robust NDAs and internal safeguards?
6.
Ongoing or Potential
Litigation
o Any
pending lawsuits that could impact revenue or reputation?
o Any
history of infringement battles?
7.
Licensing Agreements and
Collaborations
o Are
third-party licenses exclusive or restrictive?
o Do
agreements expire soon, potentially affecting operations?
Real-Life Example: Broadcom’s Acquisition
of VMware (2023)
One of the largest tech M&A deals in recent
years was Broadcom’s $69 billion acquisition of VMware in 2023. While much
attention was on Broadcom’s semiconductor business, VMware’s IP portfolio was a
massive driver of value.
- Patents
& Technology: VMware holds a strong
portfolio in virtualization and cloud software patents, giving Broadcom a
competitive edge in enterprise solutions.
- Customer
Contracts & Licensing: Investors closely
reviewed VMware’s licensing agreements, ensuring continuity of recurring
revenue streams.
- Brand
Strength: VMware’s trademark in enterprise
software is globally recognized—making it more than just a technology play
but a brand acquisition too.
Had Broadcom overlooked IP due diligence, it
could have inherited disputes, weak patent protections, or unfavourable
licensing terms. Instead, the deal highlighted how robust IP portfolios can
make or break billion-dollar M&As.
Lessons for Businesses and Startups
Even if you’re not eyeing a billion-dollar
exit, the same rules apply:
- Keep
your IP documentation clean—ensure
registrations are updated.
- Audit
regularly—know if your IP is strong and
defensible.
- Protect
trade secrets—with contracts and
security measures.
- Be
litigation-aware—settle disputes early,
before they scare away potential buyers.
Final Thoughts
In today’s innovation economy, investors don’t
just buy companies—they buy their ideas, technologies, and brands. IP due
diligence guarantees that what appears robust on the outside is just as strong
on the inside.
For companies preparing for M&A, the
message is clear:
-Treat your IP portfolio like your crown
jewels.
-Document, protect, and strengthen it.
-Because when investors come knocking, your IP will often be the deal maker—or the deal-breaker.
Pro tip: At EinfolgeTechnologies, we help businesses conduct in-depth IP audits,
freedom-to-operate searches, litigation checks, and valuation
assessments—making sure your innovation story stands strong during any
investment or acquisition discussion.
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