Who Owns Your Target's IP?
By JoAnn Lombardi, PresidentVR Business Brokers/Mergers & Acquisitions
Intangible assets such as intellectual property (IP) can't be seen, touched, or physically measured, but they can provide huge competitive advantages. During the due diligence stage of your acquisition, it's essential to research your target's IP - including patents, copyrights, trademarks, and trade secrets. Ownership could be subject to dispute and even pose the risk of litigation.
Locking Down Value
Begin your investigation by identifying key technologies, processes, or products your target company has developed or uses. Then examine which patents have been issued to it and those for which it has applied. As part of your analysis, determine if the patents protect key technologies or only minor aspects of them. If the latter, competitors may be able to bypass certain patent protections.
Also, learn if:
- Any patent applications are provisional - these can be useful placeholders for future nonprovisional filings;
- Patent applications have been filed in all the countries where the company does business;
- Any of these foreign applications have expired;
- Any licenses of third-party patents will be required to use your target's patents;
- Any royalties will be owed for past or future use of third-party patents;
- Documentation exists proving that all patents' inventors formally assigned the patent to the company.
This last point can be particularly troublesome if the inventor has since left the company. Copyrights harbor similar risks. Companies working with independent contractors may fail to ask developers to sign agreements that release rights to IP on which they've worked. Unless you have this kind of agreement, the work product legally belongs to the contractor, and you may have to pay a fee to use it. One particular area of concern is computer software, so be sure the proper licenses are transferable for proprietary software.
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New Paths for Going Public
Alternative Exchanges are Growing in Appeal
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Going public on an overseas exchange once was considered a novelty. Now, it's a viable and appealing alternative for U.S. companies. If you're considering going public, an overseas exchange could offer benefits ranging from lower costs to fewer regulations.
Scaled to Size
An overseas initial public offering (IPO) can be especially alluring for smaller companies still in the early stages of their growth cycle. The Sarbanes-Oxley Act of 2002 (SOX) introduced an array of time-intensive and expensive reporting requirements that have made it impractical for many startup and middle-market companies to go public on a domestic exchange.
At the same time, alternative exchanges have experienced enormous growth spurts. Over the past three years, London's Alternative Investment Market (AIM), which was established in 1995, has become a serious rival to NASDAQ's small-cap market exchange.
AIM once was considered a court of last resort for companies unable to meet the requirements and costs of more established exchanges, such as the NYSE or NASDAQ. Today, however, with 3,000 companies, approximately 250 of them incorporated outside the United Kingdom, it can hardly be considered an "alternative."
In 2006, AIM attracted more listings than all of its global rivals combined, according to the Independent. That said, the global credit crunch has hampered AIM's growth somewhat: 2007 saw the lowest number of IPOs listed on the exchange in five years. A submarket of the London Stock Exchange (LSE), AIM targets smaller companies in the $20 million to $200 million range and is particularly appealing to businesses still in their early development stages. The exchange also makes sense for companies offering nontraditional types of IPOs, such as public offerings whose proceeds primarily go to existing investors, including private equity firms.
Greater Flexibility
AIM poses several advantages to U.S. companies. For starters, the exchange gives you far more flexibility to determine the terms of your IPO. For example, while NASDAQ mandates a minimum number of shares companies must offer to the public, AIM has no such requirement. And AIM doesn't specify a minimum share price. Therefore, if you need only a small chunk of investment capital, you're free to raise amounts starting at $3 million.
In addition to avoiding the strictures of SOX, companies listed on AIM enjoy freedom from other regulatory hurdles. The exchange is regulated by the LSE rather than the U.K.'s Financial Services Authority, so neither the British nor the U.S. government reviews nor has to approve your prospectus. Companies that list on AIM also avoid the routine regulatory filings required in the U.S.
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The Importance of A Proper Offer In A Business Transaction
If you're buying or selling a business, at some point you're going to have to take the big step of drafting or reviewing an offer. This may seem like an intimidating process if you've never been through it before. So now what?
The best advice I can give you is to ensure you're being guided by a professional business broker and a lawyer who is experienced in completing business transactions. Your broker will assist you in understanding the deal on the whole, which is required if you want to ensure the offer works for all parties. That's an important consideration to remember; if the deal doesn't work for both sides then it's not going to happen. The lawyer will be responsible for ensuring that your specific interests are being protected in all legal matters pertaining to the transaction.
A properly constructed offer should cover all of the following: the entities involved, the pricing and deal structure, a deposit if required, conditions, guarantees, exemptions, a list of included assets & equipment, the amount of inventory included in the sale, and deadlines for offer acceptance and closing. Most people focus largely on the pricing aspect of an offer, however terms and conditions are crucial for a successful transition and life after closing. These include such key continuing aspects as seller financing, the training and transition period, an agreement with the owner for post-closing consulting or employment, a non-compete agreement, and a non-solicit agreement.
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Retail’s Omnichannel Transformation Drives LMM M&A
M&A is usually a lagging indicator. That’s not always the case in the lower middle market, however, where sell- and buy-side activity can reveal emerging trends that haven’t yet hit the radars of more observers. The lower middle-market activity fueling increased deal flow across the consumer goods sector, for instance, provides a window into the evolving appetites now shaping retail today.
In 2021, the consumer goods sector saw the biggest year-over-year increase in sell-side activity across the Axial platform, as new sale processes in the lower middle market grew by 35% from 2020 levels. In unpacking the data, it wasn’t the retail or consumer goods manufacturing subsectors that drove the increase, but rather the wholesale & distribution segment, which is emerging as the engine that drives omnichannel. And within this specific niche, 2021 deal flow jumped by 44% over the previous 12 months and accounted for 40% of all sell-side activity in the consumer goods space last year.
To be sure, the current supply-chain challenges represent one variable driving interest in these assets. But to focus on only one factor – that may or may not be temporary – would be to overlook the punctuated equilibrium that has dramatically altered consumer behaviors amid the pandemic and now, more permanently, is shaping how consumer-oriented companies go to market.
It’s not that merchandising is any less important to success in retail, but actually getting goods to consumers is becoming as critical as brand names or price points to establish a differentiated value proposition. Moreover, new retail models are emerging that not only account for the Amazon threat but have instead turned its massive presence and infrastructure into an opportunity. The data is beginning to bear this out.
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Metal Fabrication & Installation Business
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Extensively equipped and well-established aluminum and steel fabrication & installation business located in Broward County. Provides steel fabrication, engineering, and installation services for commercial, residential, industrial, and governmental projects. The business has CBE certification that allows them to do government jobs. Mainly focused on fabrication and installation of metal pipe rails, aluminum rails, aluminum trellis, sunshades, canopies, steel structural shapes, beams pilings & angles, stairs, banisters, guard railings, and many more. The company currently has three signed contracts valued at $1.2M, and over $5M open bids. Great staff in place and the owner also can stay after the transaction for a period of time.
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VR Located in Los Angeles, CA Sold a Yogurtland Franchise for $500,000.00
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Yogurtland franchise in the great exclusive location of Anaheim, CA near DISNEYLAND, Orange County. Yogurtland is the number one frozen yogurt franchise. This was a spacious and pristine store with 8 machines offering 16 rotating flavors. Very high customer ratings. Absentee owners with trained employees running store efficiently. Equipment and fixtures were in excellent condition.
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Thinking of selling your business or looking for an established
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VR is The Only Remaining Founding Firm of The International Business Brokers Association ("IBBA").
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Have You Ever Considered Selling Businesses?
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