Mergers and Acquisitions Due Diligence Seven Critical Steps You Cant Afford to Overlook – II

Mergers and Acquisitions Due Diligence Seven Critical Steps You Cant Afford to Overlook – II

* How much of the IP portfolio was acquired compared to that developed internally,

One of the many things your IP portfolio represents is know-how. The inventor of the technology with a patent protection is the ultimate subject matter expert for that technology. You would typically rely on that inventor to extend the technology and to develop complementary technologies to enhance your market position in that arena.

If the acquisition target has acquired a significant amount of technology from outside the company, it is possible that there are no subject matter experts to fully exploit the IP the company holds. Even if the technology was developed internally, inventors can also leave the company. The key take-away is that you need to inventory the human resources within the acquisition target to make sure you get the greatest return on your investment.

* In emerging markets, who’s likely to be my competition,

Emerging markets tend to be risky for many reasons, and entering them makes good market intelligence a must. One of your best sources of market intelligence is your competition. You need to understand in which technologies they are investing. The initial challenge is identifying your competition.

One way to solve both problems is to determine who is investing in technologies similar to your potential acquisition for the market you want to enter. Doing so is just a starting point but as you discover potential competitors you have the opportunity to also get a more complete understanding of their technology investment strategy. This should give you clues as to where you should direct your own development resources and it will assist with revenue forecasting.

* What is the litigation risk if I acquire this company,

The most fundamental aspect of your due diligence is determining your exposure to litigation. Sometimes acquiring a company can put a bull’s-eye on your back. Obviously, researching past litigation in which the candidate has been involved is a useful activity, but that’s just the beginning. You need a clear understanding, for example, of whether the acquisition might actually trigger litigation.

Litigious companies sometimes target other small companies for infringement, but to wait until someone with deep pockets acquires them. It might be that a lawsuit against the small company would not be worthwhile because collecting the damages a lawsuit would yield would bankrupt the defendant. The practice of targeting companies is a growing trend, driven by non-practicing entities. Many of these companies acquire IP for the sole purpose of patent infringement litigation and do not produce or sell anything, instead relying solely on litigation damages for revenue.