IP and Business: How to successfully buy or sell a business with IP assets

• Author: Noric Dilanchian
• Position: Managing Partner

Want to evaluate the IP of a business before you buy it? Want to sell a business at an increased price for its IP? Here Noric Dilanchian, Managing Partner at Dilanchian Lawyers and Consultants in Australia, provides guidance on how to avoid the obstacles.

Paul Kerin, Professor of Strategy, Melbourne Business School, wrote that "hundreds of studies have found that about 50 percent of takeovers destroy the acquirer's share value." ¹ Though appalling, this high failure rate comes as no surprise to insiders in the mergers and acquisitions game. So what knowledge do buyers and sellers of businesses need to gain to raise their game and improve these statistics?

Both buyer and seller must be smart about all the assets in the business in question. What does this mean for intellectual property (IP) assets in a business? Being smart requires buyers and sellers to use legal and other professional advice at the earliest stage. This is the case for large corporations, SMEs and micro businesses. However, is the legal advice received always practical and useful? How can a buyer or seller make this assessment?

What not to do is simple. A buyer who signs a contract with only a couple of hours of prior enquiry will be exposed to under-assessed - or even unidentified - risks buried in the detail. The list of IP assets in the contract, for example, may lack clarity. So what is the procedure to follow?

Three transaction stages

To be of use to the buyer or seller who is about to make a deal, enquiries should be structured in three stages: pre-contract, contract and post-contract. We will develop these three stages with a focus on IP assets ² in non-franchise businesses, a source of grievance for many buyers and sellers.

Pre-contract stage: maximizing the sale price for sellers

Before a business is even put up for sale, experienced lawyers can assist sellers in a number of ways in maximizing the sale price. Depending on the business, the following extensive services may be recommended:

* prepare a confidential "selling document," e.g. a disclosure statement or marketing or profile document;

* prepare a data room or files categorizing all key business documents;

* develop deal points to raise in negotiations;

* take steps to improve perceptions regarding the value of specific assets, for example by ensuring best practice protection for IP assets; and

* compare offers to determine which is the best.

Why a "selling document"

In the absence of a vendor's statement or selling document, extra money and time must be spent providing prospects with information on demand to attract and maintain their interest. In some transaction, the "supply on demand" approach can save costs. However, in more complex cases the lack of a readily available "selling document" can lead to higher risks, increased stress levels in negotiations, erosion of the buyer's trust, increased costs, legally actionable misrepresentations and oversights due to haste. A selling document prepared at an...