1970’s and 1980’s Style Mergers
No Longer Work

In yesterday’s business model, consolidation of hard assets made sense. Three small capital-intensive factories making the same long term, mass market product could be efficiently consolidated into one; competition was modest. Today, however, factories are more virtual. Profitability drivers are strategy, agility, innovation, time to market and other soft factors.

The First Step to a Successful Acquisition Is to Know Your Own Intellectual Properties

Successful acquirers in the new economy shun the quick save which results from consolidating functions with the acquired company, and then laying off the redundant acquired workforce. Those short-term hits to the bottom line have too often proven to be long term disasters, if the strategic fit of organization, product, and particularly IP assets has been overlooked.

Leading M&A activists are finding that the best acquisition target is usually the one whose IP assets make the best synergistic fit with the acquirer’s IP assets in the context of the joint company’s long term business strategy. Too few companies in the M&A frenzy, however, devote sufficient attention to understanding what IP assets they have, where the gaps are, and which of the candidate companies has IP assets which promises the best strategic fit with the IP assets of the acquirer.

Plunging forward in a frenzy to buy Company X before someone else does, without performing the critical IP due diligence, can be a recipe for shareholder value contraction in the months ahead.

The first step then in a program to improve the IP synergy of buyer and seller is for the buyer is audit its own intellectual property holdings. That audit will have a host of other benefits to the acquirer, including inevitable discovery of IP it did not know it had or did not appreciate, and the establishment of at least a rudimentary database of intellectual assets with which management can begin to understand the strengths and weakness of its IP assets upon which future growth so assuredly depends.

Having taken an audit of its IP assets, the next step for the acquirer is to compare its IP assets with those which its business plan dictates it must have to be successful.

Perform Due Diligence on Acquisition Targets to Determine Which Has the Most Synergistic Fit with the IP Assets of the Acquirer

Conducting a thorough due diligence on the IP holdings of the various acquisition targets is necessary to obtain useful information to the decision makers about which candidate offers the strongest IP strategic fit.

Rapid and Competent Post-Merger Integration of the Intellectual Properties of Buyer and Seller Is Vital

Having used strategic IP fit as a key indicator of the best acquisition target, it is imperative that the IP of the acquired company be audited, and the results compared with the IP gaps previously identified by the acquirer in its own IP portfolio.

If the goals of the integrated company are to be met, processes and organization resources must be established to synergistically merge the IP assets of the two companies. Only if this is done quickly and competently will the full value of the acquisition be realized.

In sum, the projected value of mergers and acquisitions today are often predicated on the net present value of the projected future value of the joint intellectual assets of the companies. For that projected value to realized, the IP assets of the joining companies, and their synergies and projected future value, must be thoroughly analyzed and understood before the merger takes place. After the merger, no resources can be spared to identify the IP portfolios of the two companies and to integrate them as smoothly and as quickly as possible in order to realize the projected synergies.

The Implications to Target Companies

Any company desiring to be acquired must be acutely aware of its IP assets and their value. Many companies looking to be acquired spend too much time sprucing up the financials, and too little time identifying and obtaining competent valuations of their IP assets.

It is imperative that the IP due diligence on the IP asset holdings be performed with the aid of trained IP counsel. Just counting patent and trademark noses, as is so often done at the twelfth hour before closing, is not enough. A full identification of the hidden as well as the obvious IP assets, and the real value of each to the present and future value of the surviving company, must be understood and aggressively promoted during the negotiation process.

For more on M&A IP strategy and practice, see my article “Payoffs for Buyers Who Probe a Target’s Intellectual Property”, Mergers & Acquisitions, May/June 1999, Volume 33, No. 6.