The Strategic Role of IP in Corporate M&A
While the likes of Mark Cuban typically complain about the problems with Intellectual Property, particular when it comes to the software industry, even he will admit the strategic importance of patents, trademarks and copyrights when it comes to “doing deals.” Some examples of very recent vintage ring a bell, including the smartphone patent wars involving Microsoft, Google, Samsung and Apple. Even trademarks have particular significance. In light of the recent union debacle with Hostess and “Twinkies” we’ve seen the importance of branding and trademarks in strategic corporate decision making. The following quote outlines IP’s importance in a simple one-liner:
If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and trade marks, and I would fare better than you.
— John Stuart, Chairman of Quaker (ca. 1900)
IP Can Represent Years of Investment
Admittedly, patent squatters exist to extract value out of a seemingly flawed system. However, there are other reasons IP exists. Some would use a blanket statement approach, claiming “patents protect the little guy.” I would argue that the true benefit of the legal system when it comes to IP is to protect investment.
Capital, human and time resources are all components of establishing value-added intellectual property. Without patent law in place, idea, trademark and source-code thievery would abound with no real consequences to the perpetrator.
Think of the previous Twinkie example of a trademarked brand with years of brand investment behind it. Millions of dollars have been spent on brand, distribution, product and company building since Twinkie was established as a brand in 1930. Apollo Global Management LLC is obviously seeing they may be able to invest years of goodwill and brand equity by obtaining Twinkie’s brand and trademarks on the cheap and out of bankruptcy.
IP can and does protect the little guy, but the truth is that a large majority of patents, trademarks and copyrights are owned by the corporate-world equivalent of the 1%. That said, when smaller corporations practice creative destruction through the genesis of new ideas, there remains a value-add for larger strategic acquirers.
Acquisitions: More than Just “Goodwill”
In spite of ridiculous some of the ridiculously large “goodwill” write-downs we’ve seen in recent M&A transactions, much remains to be gleaned from the value such goodwill has provided larger firms seeking to enter new markets with a winning strategy.
Take the semi-recent $1 billion acquisition of Seattle-based Isilon Systems by EMC. Many claimed there was massive over-payment on EMC’s part for the assets and goodwill of Isilon. However, EMC was able to recoup the Isilon acquisition in short order as demand for “big data” coupled with EMC’s existing and massive sales force provided a channel to which Isilon’s technology could be funneled. It was a strategic move on the part of EMC–a highly-calculated acquisition of goodwill that ultimately paid off.
Not all goodwill acquisitions have such astounding results. Does the aQuantive deal by Microsoft ring any bells? However, as long as there is IP law, patent wars and massive goodwill M&A will abound.
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