Adriana Morales
Your company’s intangible assets may be among its most valuable, yet they are often not fully identified. It is very common for these assets to be overlooked or undervalued, or to be inadequately protected and managed. This translates into a mistake that can cost you losses stemming from an improper valuation ahead of a merger or acquisition of the company.
In recent years, intellectual property—hand in hand with technological progress and the development of new technologies—has led the market to pay greater attention to intangible assets, turning them into a central element in merger and acquisition (M&A) transactions. M&A deals aim to strengthen a business, expand its operations, and generate greater economic value. Therefore, in order to meet these objectives, a review of all of its assets must be carried out to determine their real value, including—as an essential part—intellectual property in its full scope.
Within these intangibles, we should not limit ourselves solely to the company’s trademarks, even though they are usually the most visible and recognized asset; depending on the nature of the business, there may be other intellectual property rights that deserve protection and represent significant economic value. Some examples of relevant intangible assets are: copyrights generated through technological developments, such as the accounting or human-resources management software the company uses, the mobile application developed for its customers, and artistic works used in advertising and digital content; ownership of its domain name and social media accounts; invention patents; plant varieties; trade secrets such as recipe formulations and manufacturing processes; databases; and even the know-how developed over the years.
I- The Due Diligence Process
In matters of intellectual property, the review and analysis of the information must cover, at a minimum, the aspects set out below.
II- Identifying the Assets
Intellectual property has the particular feature that the existence and validity of certain rights do not necessarily depend on their registration; in some cases, legal protection arises from the moment of creation, provided that the requirements established by law are met. Another particularity is that registration before the Intellectual Property Registry is not always a requirement for commercial use, which opens the door for individuals or companies to exploit assets without holding duly accredited rights.
In these two scenarios, when conducting a due diligence process, it is possible to identify high-value intellectual property rights that may lack proper registration—which affords greater legal certainty when establishing the validity, exclusivity, and ownership of these rights, all essential elements in a transaction.
III- Ownership
Consistency between the registered holder of the intellectual property rights and the person who commercially exploits them is essential to establish who holds the authority to dispose of these assets, since any discrepancy over such ownership could represent a relevant contingency in a due diligence process.
A common practice at the start of a business is for the entrepreneur to register their intellectual property rights in their own personal name. However, when the business grows and evolves to operate through a legal entity, the transfer of ownership of these rights is sometimes not formalized, which results in a lack of consistency between the registered holder and the person who commercially exploits those assets.
Another important aspect to assess is how the company, in its capacity as employer, has regulated the ownership and assignment of the rights created by its employees as part of their duties, since the mere existence of an employment relationship does not automatically mean that such a right belongs to the employer.
IV- Validity
This review is essential to confirm that the assets retain their value and can be effectively exploited by the acquirer. Registered intellectual property rights carry a limited term of protection granted by law. Therefore, it is important to confirm that the rights are genuinely in force, since some require renewals to maintain their protection, while others do not allow renewal.
V- Licenses
Some companies grant licenses over their intellectual property rights, or acquire such licenses from third parties. Reviewing this type of contract is relevant to determine the scope of the rights granted, as well as the terms and conditions of such agreements.
VI- Advertising Agreements
For companies with a strong digital presence, it is important to identify the agreements entered into with content creators and advertising agencies for the exploitation and use of their trademarks. This review will make it possible to verify whether adequate authorizations are in place to govern their proper use and prevent potential claims.
In conclusion, a proper review—guided by intellectual property experts and covering at least the aspects detailed above—will provide greater legal certainty to the parties involved in the transaction. The seller will be able to substantiate the economic value of its assets with objective evidence, and the buyer will be able to assess the existence of potential contingencies that could affect that valuation and, consequently, the total value of the deal.