May 11, 2020
The coronavirus pandemic is causing turmoil on the market, and the number of business acquisitions is expected to rise towards the end of the year. This volatile and nebulous market means that differences of opinion about the value of a company are historically large. Both the buyer and the seller should now find out the value of the company’s IPR portfolio, says Kolster’s CEO Timo Helosuo.
Now, more than ever, you should know what is in your own or a competing company’s IPR portfolio – and what it is worth.
The coronavirus pandemic is reorganising the business world. The weak will fall, but strong companies have an excellent opportunity to accelerate their growth through business acquisitions. The market is quiet right now, but planning for the future is already underway beneath the surface.
“Private equity investment firms are looking for partners and preparing to take advantage of opportunities. Due to the coronavirus pandemic, we will certainly see more business acquisitions towards the end of this year than last year – as well as mergers and bankruptcy estate sales”, says Kolster’s CEO Timo Helosuo.
The situation is attractive especially for growth companies.
“Growth companies are definitely thinking about buying. They can accelerate their growth through an acquisition or expand into new markets. If successful, a business acquisition will significantly accelerate the implementation of a growth strategy”, Helosuo says.
What should you remember and do on the business acquisition market right now, whether you are a buyer or perhaps a seller in a difficult situation? At least the following three things:
1. Understand the importance of the IPR portfolio for the future
If an expedition to the bottom of the portfolio seems pointless, two examples are worth recalling: Google’s Motorola deal and Nokia’s Microsoft deal. Patents have monetary value and, if used properly, provide a means to move forward quickly in development.
“Google bought Motorola because of its patents and used them to quickly create Android. Nokia, on the other hand, did not sell its patents to Microsoft, and now they generate nearly EUR 1.5 billion in revenue for the company”, Helosuo points out and continues:
“In acquisitions, outsiders rarely notice that the parties specifically want the IPR portfolio or really essential patents.”
So a good IPR portfolio offers opportunities for both the buyer and the seller. By comparing the portfolio to competitors’ portfolios, you can find valuable patent combinations to attract a buyer.
“One plus one is more than two: combining two portfolios can result in a really valuable package. Patents can also help you gain market control, as a patent is principally a right to prohibit others”, Helosuo says.
2. Investigate and appraise the portfolio – that will facilitate reaching a deal
In an exceptional situation, it is difficult to quickly determine the price of the company being sold.
“In the current exceptional circumstances, the differences of opinion between the buyer and the seller about the value of the company are historically stark. Differing assessments about company value will slow down acquisition negotiations”, Helosuo says.
It is now a good idea to find out the contents of the company’s IPR portfolio and especially its value, whether you are the buyer or the seller. That way, both receive essential information to support decision-making and reaching a deal.
“Especially in this market situation, IPR valuation by an external professional is a worthwhile process for both parties. It is not a matter of opinion: assessments are carried out using generally accepted methods.”
An assessment by an outsider can reveal, for example, attractive patents in a bankruptcy estate. It can save a lot in the case of a company that has run into difficulties.
“We are able to assess where the value of an IPR portfolio is using different methods. Even if a company has gone bankrupt, it is not worthless: the estate can include a very valuable patent portfolio. That, too, can bring in interested buyers”, Helosuo points out.
A thorough due diligence investigation is usually done when acquiring a company, but a prospective buyer should obtain a light analysis on the company’s IPR assets already when looking into the market. An expert is able to find out quite quickly what patents and IP rights a company has and how they compare with competitors.
“In selecting an acquisition target, a light analysis helps to narrow down the list of interesting targets and partners.”
3. Take care of IPR strategy, whether you are selling or not
You should keep your papers in order if you want to maximize the value of your IPR ownership. The value of IPR assets consists of more than just patents.
“How things have been documented also matters. If people leave, will the company retain knowledge of things? The value of the portfolio can be strengthened through documentation”, Timo Helosuo says.
A good IPR strategy is also helpful for reaching a deal. It makes it easy for the buyer to understand what they are acquiring and for the seller to sell.
“A strategy provides a clear logic for investments. The portfolio has been built and maintained with care. If you can or need to sell, pricing is easier.”
Even if you do not anticipate selling, it is worth it to update the IPR strategy now.
“It is a good idea to update your IPR strategy to the current situation. You should not develop and protect anything based on the pre-coronavirus situation, but update the strategy for the future.”