Unlocking Hidden Value: Mastering Intellectual Property In M&A Deals For Long-Term Success

Key strategies for IP management, due diligence, and AI integration

In the spring of 1998, Volkswagen AG made headlines by purchasing Rolls-Royce for nearly $1 billion, only to discover that the Rolls-Royce trademark was not included in the deal. Rival automaker BMW swooped in and acquired the valuable trademark for just $65 million. This iconic example highlights the critical role intellectual property plays in mergers and acquisitions (M&A). 

Whether dealing with patents, trademarks, or trade secrets, intellectual property (IP) can significantly influence the value of a transaction and pose both opportunities and challenges. To ensure a successful M&A process, companies must carefully manage IP through comprehensive due diligence, strategic integration, and the use of advanced tools like contract AI to minimize risks and maximize value.

In an M&A transaction, intellectual property can include a wide range of assets, such as patents, copyrights, trademarks, trade secrets, and proprietary technology. These assets are often a company’s most valuable resource. In industries like tech and pharmaceuticals, for example, IP might hold more value than physical or operational assets. Take Tesla, whose innovations in electric vehicles and energy storage are protected by patents that make it a leader in its field. For any company considering an acquisition, IP can be the key to enhancing its competitive advantage in the market.

However, these assets can also introduce significant risks if not properly managed. For example, unresolved IP ownership issues, infringement claims, or licensing encumbrances can complicate a deal. If a company’s patent is being challenged in court, or its technology is being licensed under restrictive terms, these issues can negatively impact the acquiring company’s ability to fully leverage the IP. That is why IP is not just an asset in M&A, it is also a potential risk that requires careful handling.

The Role of Due Diligence in Managing IP

Conducting thorough IP due diligence is a critical first step in any M&A transaction. The due diligence process ensures that the acquiring company fully understands what IP it is getting, its current value, and any potential legal or financial risks tied to it.

When Microsoft acquired LinkedIn, the IP due diligence process would likely have involved evaluating LinkedIn’s trademarks, data privacy practices, and proprietary algorithms. This would ensure that Microsoft was acquiring assets free from legal encumbrances and with clear ownership. Similarly, when a retail company acquires another, it may need to review trademarks for brands and product designs to ensure there are no outstanding legal disputes.

A proper IP inventory is essential during due diligence. This includes cataloging all patents, copyrights, trademarks, and trade secrets, and verifying that the target company holds clear ownership of these assets. It is also important to assess the risks of IP infringement or legal challenges, which could lead to costly litigation down the road. By conducting detailed due diligence, businesses can avoid buying into future legal disputes and ensure they are acquiring valuable, risk-free IP.

Managing IP During the Critical Post-merger Integration Phase

Once the deal is completed, the challenge shifts to integrating the acquired IP into the new company’s operations. This can be particularly tricky, especially if the two companies have overlapping or conflicting IP portfolios.

When Disney acquired Marvel Entertainment, the company had to integrate an extensive portfolio of trademarks and copyrights, including Marvel’s iconic characters and stories. Disney needed to ensure that Marvel’s IP assets were not only legally protected but also fully integrated into Disney’s broader strategy for expanding its entertainment empire. By harmonizing these assets, Disney was able to use Marvel’s characters in new films, television shows, and merchandising, making the acquisition highly profitable.

Integration involves not just consolidating IP but also aligning management strategies to protect these assets moving forward. Ensuring that trademarks are properly registered in all relevant markets, managing patent portfolios effectively, and retaining key employees with valuable IP knowledge are all important steps in this process.

A famous example of how valuable IP can be in M&A is the case of Nortel Networks. After declaring bankruptcy in 2009, Nortel’s operational assets had little value, but its IP portfolio — particularly its wireless and 4G technology patents — became a major point of interest. In 2011, Nortel’s 6,000 patents were auctioned off for a whopping $4.5 billion to a consortium that included Apple, Microsoft, and Sony. These companies saw the patents as critical defensive tools in their ongoing battles over mobile and networking technology, highlighting how IP can turn a struggling company into a highly valuable acquisition target.

This case shows that even when a company’s business model fails, its IP can still hold immense value, particularly in industries where innovation and technology are key drivers of competition.

How Contract AI Is Supercharging M&A

One of the most exciting developments in managing IP during M&A is the use of contract artificial intelligence (AI). With the sheer volume of legal documents involved in large transactions, AI can help automate much of the due diligence process, ensuring that no important details are overlooked.

Contract AI tools can quickly analyze contracts and identify key IP-related clauses, such as ownership rights, territory restrictions, and licensing models. For example, in a tech acquisition, AI can scan thousands of software licenses and their related patents to detect any potential restrictions on transferability or use. This allows businesses to streamline the process of identifying and addressing risks while saving time and reducing costs.

After the merger, AI can continue to monitor compliance with IP-related agreements and help integrate different management systems from both entities. By using these advanced tools, businesses can not only ensure a more efficient due diligence process, but also protect and maximize the value of the acquired IP in the long term.

Effectively managing IP in M&A is crucial for ensuring that a deal is successful. By conducting thorough due diligence, carefully integrating IP post-merger, and leveraging cutting-edge technologies like contract AI, businesses can minimize risks and unlock the full potential of their intellectual property assets. IP is not just a legal formality in M&A, it is a strategic asset that, when properly managed, can be a significant driver of long-term growth and innovation.

*Disclaimer: The information provided in this communication is for general informational purposes only and is not intended as legal advice. No attorney-client relationship is established by this communication, and it should not be relied upon as a substitute for legal consultation with a qualified professional regarding specific circumstances. Always seek the advice of a licensed attorney for any legal concerns or questions.

Riley Hawkins is the Chief Strategy Officer for Evisort, where he leads a team of dedicated solutions consultants that educate legal and business leaders on AI-native contract management strategies employed by premier corporations.