Written by: Keegan Caldwell

Despite the avalanche of companies spearheading innovation across the ways we live, work and play, the past decade has generally been challenging for M&A markets. Even when we consider the records broken during 2021’s M&A cycle, supply chains, geopolitical issues, rising inflation and high-interest rates have contributed to a bear market in the M&A sector.

However, the tide is turning. A flurry of recent deals has indicated an upswing in M&A activity, supported by a steady increase throughout the year. Another trend I believe we can expect during this upward trajectory is a mounting interest in leveraging intellectual property (IP) portfolios to secure these deals.

How can IP help? Understanding IP portfolios is important in mergers, acquisitions and exits. This comprehension can allow for accurately assessing value, managing risks, gaining strategic advantages, structuring deals effectively and optimizing asset integration or monetization efforts. For instance, after integrating AI technology into our patent application tool, my own firm has exceeded the typical allowance rate of patent examiners, averaging over 90% compared to the national rate of 65% over a 10-year period.

After helping many companies develop and implement a robust IP strategy for their business needs, I’ve noticed that portfolios play a pivotal role in shaping deals. In my experience, the adept management of IP can enhance value for leverage that funds and drives M&A activity, and a deep understanding of IP can give companies a competitive edge and facilitate smoother negotiations and transitions throughout their M&A journeys.

Understanding IP Portfolios

Organizations house their intangible assets in IP portfolios. These portfolios hold the rights to oversee and protect intangible assets, including patents, copyrights and trademarks. In today’s technology-driven world, it’s nearly impossible to find an organization without some sort of IP.

Building a portfolio can be a smart business move to protect your IP. This strategy can also lead to value, providing your organization with a competitive edge. PitchBook research found that the exit rate for patent-seeking companies leaving the public markets is at least five times greater than that of non-patent companies. Additionally, the median exit value for patent companies is 154.9% higher than for non-patent companies.

Remember when Facebook acquired Instagram in 2012? To maintain its status as the social media tech giant to beat, this $1 billion deal included the photo-sharing app and its IP. Just two years later, Facebook further asserted its market dominance by acquiring WhatsApp for $19 billion. This year, Facebook’s parent company, Meta Platforms, celebrated its 20th anniversary, and the organization boasts nearly four billion users per month across its family of social networks. This is thanks in large part to its comprehensive IP portfolio.

Making The Most Of IP Assets

Referencing Meta’s strategy can help your company enhance its own IP portfolio. Start by understanding and identifying your assets, researching areas for improvement or gaps in the market, diversifying IP types, exploring additional industries and markets that make sense for your business goals, and acquiring additional IP assets through M&A, collaborations and partnerships.

The due diligence process should uncover IP owned or used by target companies. Use this opportunity to consider both the value and the risks of the company’s IP portfolio as you navigate the M&A process. Do any brands or products associated with the target company have a negative reputation? Does the target company have patents or copyrights that could enhance your organization’s current or future product offerings? Are there new opportunities to innovate, gain a competitive advantage or acquire new customers? What fundraising opportunities might exist for a later IPO or acquisition?

As PitchBook’s findings outline, acquisition exits can boost patent company values. Maximize your IP’s value by protecting it, regularly reviewing and updating your portfolio, and always knowing—and enforcing—your IP rights.

Using IP For Funding And Deals

PWC emphasizes the financing challenges dealmakers will face during this M&A upturn, stating, “The higher cost of capital will put downward pressure on valuations and require dealmakers to create more value to deliver the same return as before.” You can avoid some of these hardships by attracting investment through IP. Gaining IP-backed funding typically requires you to prove the potential ROI for your IP through a combination of storytelling and data. Use numbers, predictions and potential opportunities to map out your vision, but seal the deal with emotional appeals to convey your portfolio’s potential.

Driving M&A with IP portfolios requires a strategic approach. First, build an IP portfolio early on in your business journey. In my experience, there are two major reasons startups and new companies don’t invest in IP strategies: a lack of finances and a belief that working in non-traditional IP sectors means they won’t have to worry about technology. AI and other emerging technologies can be meaningfully applied to any industry, and that’s just scratching the surface. Even established companies can benefit from IP strategies, especially during exits.

Consider where your organization can leverage technology to extract value and protect patents. You can also consult IP law firms or experts to help you secure debt funding and tech valuations or find partnerships through collaborations and M&A. (Full disclosure: My company offers these services, as do others.)

Final Thoughts

The biggest challenges to building an IP portfolio include overlooking opportunities, not understanding your IP, and failing to protect it. Patents provide businesses with exclusive rights to technology during a specific period. With so much new technology available, trademarks can protect your IP against current competition and provide a higher valuation and ROI during exit transactions.

It’s not too late to start building a successful IP portfolio. Look for ways to find, manage and protect your portfolio, and be sure to maintain that protection throughout your organization’s lifecycle to extract the most value from your IP.

This publication is distributed with the understanding that the author, publisher, and distributor of this publication and/or any linked publication are not rendering legal, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, assume no liability whatsoever in connection with its use. Pursuant to applicable rules of professional conduct, portions of this publication may constitute Attorney Advertising.

Read the article on Forbes.