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Intellectual Property Assets in Mergers and Acquisitions

An up-to-date and in-depth examination of intellectual property issues in mergers and acquisitions In mergers and acquisitions, intellectual property assets can be especially difficult to accurately value, most notably in rapidly evolving high-tech industries. Understanding the factors that create value in intellectual property assets, and the part such assets play in both domestic and international mergers, is vitally important to anyone involved in the merger and acquisition process. This book provides an overview of the intellectual property landscape in mergers and acquisitions and thoroughly covers important topics from financial and accounting concerns to due diligence and transfer issues. Bringing together some of the leading economists, valuation experts, lawyers, and accountants in the area of intellectual property, this helpful guide acts as an advisor to business professionals and their counsel who need answers for intellectual property questions. The valuation methods presented here are simple and don't require a background in finance. Whether you're a manager or executive, an accountant or an appraiser, Intellectual Property Assets in Mergers and Acquisitions offers all the expert help you need to better understand the issues and the risks in intellectual property assets in mergers and acquisitions
eBook, English, 2002
John Wiley & Sons, Incorporated, Hoboken, 2002
1 online resource (458 pages).
9780471267799, 0471267791
1047701773
INTELLECTUAL PROPERTY ASSETS IN MERGERS AND ACQUISITIONS
ABOUT THE EDITORS
ABOUT THE CONTRIBUTORS
CONTENTS
PREFACE
ACKNOWLEDGMENTS
CHAPTER 1 MERGERS AND ACQUISITIONS: AN OVERVIEW
Introduction
Fifth Merger Wave Exported to Europe
Fifth Merger Wave Compared to Prior Merger Periods
Types of Mergers, Acquisitions, and Corporate Restructurings
Why Do Firms Merge?
Growth
Synergy
Consolidating and Roll-Up Mergers of the Fifth Merger Wave
Diversification
Related versus Unrelated Diversifications
Leveraged Transactions
Role of Intellectual Property in Mergers and Acquisitions
How do Mergers Turn Out and What Can Go Wrong?
What Can Go Wrong with Intellectual Property Motivated Acquisitions?
Trends in Deal Prices for the Fifth Merger Wave
Winners and Losers in Mergers and Acquisitions
Effects of Sell Offs
Conclusion
Endnotes
CHAPTER 2 THE ROLE OF INTELLECTUAL PROPERTY AND INTANGIBLE ASSETS IN MERGERS AND ACQUISITIONS
Introduction
A Firm's IP Has Become a Major Factor in Valuing M & A Deals
3M Corporation's Shift from Internal R & D for IP to A Mixture with External Acquisitions for New IP
The Winner's Curse in M & A Auctions and Its Effect on New IP Creation, Transfer, and Sharing
Investment Bankers Use Four Basic Methods of Valuing Mergers and Acquisition Transactions
Comparable Company Analysis
Comparable Transactions Analysis
Discounted Future
Steps to a Valuation
Option Valuation
Damodaran's Option Valuation Procedure for a Patent
Value of Underlying Asset
Variance in the Value of the Asset
Exercise Price of Option
Expiration of the Option
The Dividend Yield
An Important Caveat on Investment Bankers Selection of Valuation Method
Alternative IP Valuation Methods. Today's Compression of the Product Life Cycle and Modern Valuation Problems
Mergers and Acquisitions and the Consolidation of Market Power in Various Industries in the World
Free IP Giveaways Impact M & A Growth and Price
Bundling of Free IP Add-ons Impact M & A Prices
Impact of Rapid Technological Advance on M & A Valuations
Merger Failure Is the Norm
Failed Merger Negotiations Risk IP Losses
Impact of New Internet IPO Market on M & A Prices
Typical M & A Valuation Problems of High-Technology Firms
M & A Valuation of IP Combines Investment Banking with Strategy Consulting
Example of a Merger Valuation of IP in an Actual Transaction
Valuation: To Believe or Not to Believe
Models of Intellectual Property Firms: Incestuous Family, Network Alliances, Winner Take All, a Wheel of Fortune
Divestitures versus Acquisitions Signal the Driving Role of IP in Today's Businesses
Wheel of Fortune
AICPA Accounting Rule Changes Impact Merger and Acquisition Transactions and Valuations
Before the Long-Term Change in Pooling Accounting Rules
Ranges of Intellectual Property Financial Valuation
Valuation of Established Intellectual Properties
Valuations of a Competitor's Intellectual Properties
Investment Bankers' Merger and Acquisition Valuation Problems
Endnotes
CHAPTER 3 INTANGIBLE ASSETS AND INTELLECTUAL PROPERTY ACCOMPANYING MERGERS AND ACQUISITIONS
Introduction
The Asset Portfolio
Monetary Assets
Tangible Assets
Intangible Assets
Business Enterprise Value in Mergers and Acquisitions
Acquisition Premiums
Acquiring Intangibles
Intangible Assets and Intellectual Property
Rights
Relationships
Assembled Workforce
Customer Relationships
Distributor Relationships
Undefined Intangibles
Goodwill
Going Concern Value
Intellectual Property
Proprietary Technology. Patents
Copyrights
Trademarks
Internet Domain Names
Computer Software
Mask Works
Right of Publicity
Intellectual Capital
Comment
Endnotes
CHAPTER 4 VALUATION OF INTELLECTUAL PROPERTY ASSETS IN MERGERS AND ACQUISITIONS
Introduction
Reasons for Valuing Intellectual Property in Mergers and Acquisitions
Strategic Reasons to Value Intellectual Property Management
Transactional Reasons to Value Intellectual Property
Company Acquisition Planning and Due Diligence
Licensing Intellectual Property
Acquiring or Selling Intellectual Property (in the Absence of a Business Combination)
Establishing Equity Contributions
Corporate Spin-Offs
Tax Reasons to Value Intellectual Property
Intercompany Transfer Pricing
Intellectual Property Management Subsidiary
Charitable Donations of Patents and Related Technology
Purchase Price Allocation
In-Process R & D
Financial Reasons to Value Intellectual Property
Obtaining Financing/ Raising Capital/IP Asset-Backed Securitizations
Reorganization/Bankruptcy/Loan Workouts
Legal Reasons to Value Intellectual Property
Valuation Approaches and Their Application
The Premise of Value: Fair Market Value
The Sources of Potential Value
Valuation Approaches: Market, Cost, and Income
Market Approach
Cost Approach
Income Approach (Discounted Cash Flow Analysis)
Amount of the Income Stream
Duration of the Income Stream
Accounting for the Risk of the Income Stream
Pricing Considerations in Licensing
The Range of Negotiations: The Floor and the Ceiling
The Licensor's Theoretical Floor
The Licensee's Theoretical Ceiling
Industry Royalty Rates
Other Pricing Factors
Conclusion
Endnotes
CHAPTER 5 ACCOUNTING FOR INTELLECTUAL PROPERTY DURING MERGERS AND ACQUISITIONS
Introduction. Accounting for Intellectual Properties in Mergers and Acquisitions
Asset Recognition
Objective of Accounting System
Financial Reporting of Business Combinations-General
The Pooling Method
The Purchase Method
Which Method to Use
Financial Reporting for Acquired Intangible Assets
Amortization
Tax Treatment
Impairment of Intangibles
Proposed Financial Accounting Standards Board Changes and Recent Developments
Proposed Elimination of the Pooling Method
Goodwill and Amortization
In-Process Research and Development Charges
Definition of In-Process Research and Development Charges
Historical Treatment of Research and Development
Potential Changes
Increased SEC Scrutiny of In-Process Research and Development Write-Offs
Bibliography
Endnotes
CHAPTER 6 INTELLECTUAL PROPERTY ASPECTS OF ACQUISITIONS
Introduction
Acquisition Agreement
Contents of the Acquisition Agreement
Other Documents
Transfer Documents
Obtaining Assignments of Licenses
Ancillary Agreements and Obligations
Drafting the Description of Assets
Identifying the Intellectual Property Being Transferred as Part of a Stock Sale
Identifying the Intellectual Property To Be Transferred in an Asset Sale
Determining the Disposition of Jointly Used Intellectual Property
The Substance of Intellectual Property Representations and Warranties
How Intellectual Property Law Affects Representations and Warranties
Patents
Trademarks
Copyrights
Trade Secrets
Rights of Publicity
Industrial Design Rights
Internet-Related Assets
Negotiating Representations and Warranties
Indemnification
Endnote
CHAPTER 7 U.S. ANTITRUST AND INTELLECTUAL PROPERTY IN MERGERS AND ACQUISITIONS
Introduction
Enforcement Agency Policies
Horizontal Merger Guidelines
Non-Horizontal Merger Guidelines. Antitrust Guidelines for the Licensing of Intellectual Property
Antitrust Guidelines for Collaborations Among Competitors
Intellectual Property Issues in Merger Cases
Horizontal Mergers and Joint Ventures
Vertical Mergers
Mergers Involving Horizontal and Vertical Restraints
Exclusive Licensing
Conclusion
Endnotes
CHAPTER 8 INTELLECTUAL PROPERTY AND TECHNOLOGY DUE DILIGENCE IN BUSINESS TRANSACTIONS
Introduction
Need for Intellectual Property and Information Technology Due Diligence
What Due Diligence Is
Identification of the Nature of Primary and Related Transactions
Share Purchase
Asset Purchase
Purchase from Receiver or Trustee
Financing
Due Diligence by Parties Other than the Purchaser
Due Diligence by Seller
Due Diligence by Borrower
Due Diligence by Issuer
Scope and Cost of Work for Intellectual Property and Technology Due Diligence
Time
Cost
Nature of the Transaction
Ancillary Agreements
Nature of the Business
Value of Intellectual Property and Information Technology
Structure of the Business
Domestic Issues of Multinational Transaction
Multiple Location Business
International Businesses
Plans for the Business
The Marketplace
Assistance
Secrecy Agreements
Representations, Warranties, and Opinions
Transitional Issues
Intellectual Property Rights
Overview of Intellectual Property
Patents
Types of Searches
Limitations of Searches
Follow-up
Designs
Types of Searches
Limitations of Searches
Follow-up
Trademarks
Types of Searches
Limitations of Searches
Trade Dress
Domain Names
Follow-Up
Tradenames
Copyright
Types of Searches
Limitations of Searches
Moral Rights
Neighboring Rights
Database Rights
Follow-up
Semiconductor Chip Rights
Plant Rights
Personality Rights