In this episode of "Show Me the Way," Dave and David Wanetick, Managing Director at Merit Investment Bank, to delve into the intricacies of IP valuation and its critical role in bridging valuation gaps during mergers and acquisitions. They discuss key strategies, valuation methodologies, and the essential steps in determining patent worth, and offers insights on how patents can enhance business value during monetization events.
Ep. 61 — Bridging Valuation Gaps with PatentsDavid Wanetick shares that a key challenge in mergers and acquisitions is closing the valuation gap between what a seller hopes to receive and what a buyer is willing to pay. Patents, he argues, can play a pivotal role in bridging this gap. Their strategic use can transform potential deals that might otherwise fall through.
How Patents Can Bridge Valuation Gaps- Infringement Recovery: One strategy is leveraging current or past patent infringements to recover damages. Agreements can be structured so that any financial recovery from this can benefit both the buyer and the seller.
- Injunctions: Another approach involves obtaining injunctions against competitors who infringe on patents. This tactic can reduce competition for the buyer, potentially sharing the financial benefits with the seller based on agreed terms.
- Impounding Infringed Products: David discusses the value of using patents to impound infringing products through the International Trade Commission, reducing market competition.
- Patent Applications and Future Value: When the seller holds patent applications, there can be agreements on potential increases in value should those applications be granted without narrowing claims.
- Licensing Across Industries: A seller’s patents might protect products in multiple industries. If the buyer can license those patents to other industries, this could open new revenue streams.
Understanding a patent's worth is complex, involving a comprehensive analysis of the company, industry, patent history, and more. David highlights various methodologies like the income, market, and cost methods, yet notes the challenge due to the lack of comparable data. Overall, it's a thorough process requiring expertise and creativity.
M&A Considerations Around PatentsIn potential acquisitions involving patents, several due diligence steps are crucial:
- Clear Chain of Title: Ensuring proper assignment of patents to guarantee ownership.
- Maintenance Fees: Confirming all fees are paid to keep the patent enforceable.
- Prior Art and Inventorship: Verifying no conflicting prior art and ensuring proper listing of inventors.
- Sustaining Invalidity Challenges: Patents that have withstood challenges tend to hold stronger value.
David recommends engaging companies like Merit Investment Bank early to prepare patent valuation reports and consult on acquisition strategies. His firm works closely with clients to navigate the complex patent landscape, drawing on international networks to facilitate successful deals.
Optionality of PatentsPatents offer businesses various strategic options—they can secure loans, serve as litigation tools, or even provide strategic corporate advantages in international markets. They also carry intangible benefits like branding value and future business opportunities.
About Merit Investment BankMerit Investment Bank specializes in sell-side mandates for lower mid-market companies, and assists clients across diverse industries. Their personalized service and strategic insights make them an asset in closing rewarding mergers and acquisitions.
For further insights from David Wanetick or to explore services from Merit Investment Bank, feel free to connect with him via LinkedIn or through his company email.
To reach out to Dave for advice or consultation, please visit www.davidseitter.com or email him at dseitter@spencerfane.com
Disclosure
This podcast is provided for educational purposes. It does not constitute legal advice and is not intended to establish an attorney-client relationship. The recommendations contained in this podcast are not necessarily appropriate for every individual or business. In determining the best course of action, business owners should consult with an attorney on their distinct circumstances.
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