The asset class of intangibles, including intellectual property (IP) makes specific demands on the due diligence process for transactions and strategic decision making.

1. IP DUE
DILIGENCE
KEY ISSUES FOR M&AKEY ISSUES FOR M&A
FROM A VALUE PERSPECTIVEFROM A VALUE PERSPECTIVE
FERNANDO TORRES, MSCFERNANDO TORRES, MSC
IPMETRICSIPMETRICS®®

2. TOPICS
 Public IP identification and value
 Quality, hierarchy and value
elements
 The valuation process
 IP value enhancement

3. FIRST STEPS: IDENTIFY
THE INTANGIBLES
 Internally generated intangible assets or
intellectual property are expensed or recorded at
historical cost
 Acquired intangibles and IP reported as
allocated at purchase date
 Intellectual property must be stratified into core
and peripheral categories
 Not all intangible assets are intellectual property
 Not all intellectual property may be at the core
 Peripheral portfolios may be monetized

4. INTELLECTUAL
PROPERTY

5. INTANGIBLE ASSETS

6. IDENTIFY IP PORTFOLIOS
FOR EXTENSIONS
 Vertical and horizontal
 Out-licensing
 Spin-off
 Analyze quality of trademark IP
 Relevance to current/future business
 Relative strength analysis
 Potential infringement analysis

7. ANALYZE IA/IP
PORTFOLIO QUALITY
 Forward/backward references
 Breadth of claims set
 Challenge / infringement record
 Trade secrets procedures and
safeguards
 Knowledge bases
 Below-market contracts

8. STANDARDS OF VALUE
 Fair market value – FMV –
 The price at which property would change hands
between a willing buyer and seller, when neither
party is under compulsion to transact and both
parties have reasonable knowledge of relevant
facts
 IRS purposes, hypothetical transaction
 Fair value – FASB IFRS –
 The amount at which an asset could be bought
or sold in a current transaction between willing
parties, other than in a forced or liquidation sale
 GAAP, specific synergies

9. VALUE OF IP IN USE
 Value to (hypothetical) licensee
 Value to (potential) licensor
 Anticipated growth / decline
 Reserve value
 Blocking value
 Monopoly value
 Out-licensing
 Core IP vis-à-vis Peripheral IP
 IP holding company

10. CONTACT US