Analysts say that 70% or more of corporate acquisitions will be judged “failures.” I believe that many of these failures can often be attributed to the failure of conventional due diligence processes to suitably account for the participation in patents in predicting long-term financial returns for the acquired company. One reason for this is that the due diligence process moves quickly as deals need to be closed, oftentimes sacrificing robust investigation of complex issues, such as patents. Also, you can’t see something that you’re not aware of, and I know that many business people are not aware of the value that patents bring to a company that is creating innovative products and technology.
Notably, rarely, if ever, is an after-the-fact analysis conducted of what happened to cause M&A failure. It follows that inadequate patent due diligence would likely never be seen to be the cause if this subject is not on the “radar screen” of M & A professionals in the first place. It should be.
My 20+ years’ experience in developing and deploying strategic IP enables me understand that at least part of M&A success can involve determination of how the scope of protection for the products or technology of the target company enhances the long-term competitive advantage. Forward-looking financial projections that generate the ROI of an acquisition will assume this to be present when predicting the future financial returns. Patents are an often-neglected key component of this analysis when, in fact, patent protection can be a key—if not the key—aspect of a company’s competitive advantage.
The multi-million dollar questions—often literally—in patent due diligence are:
Does it appear that other companies have or would like to have footprints in areas identical to or similar enough to the products or technology for which future revenue projections are based on exclusivity of ownership of the customer or market segment?
If so, does the target company own or can it generate patents that can restrict these other companies from directly competing with the target company in these product or technology markets?
Adding these inquiries to M&A due diligence efforts can yield better results, perhaps improving the dismal ROI attainable today. Read more in my M&A Failure: When Patent Due Diligence is to Blame article. This post also outlines strategies that I implement to augment the usual traditional patent review and legal analysis process.