Buying physical assets from a company in administration is well-trodden ground for many business buyers. However, you may not have previously considered buying intellectual property (IP) from a company in the same scenario.
Ignoring the potential money to be made from buying IP out of administration could be a major oversight as IP assets often have significant value, even if a business is in administration. IP worth snapping up can range from trademarks, brand (with its inherent reputation), patents, databases, research and developments, domain names and websites or even industry knowledge in various formats. These can all be highly valuable assets that the insolvency practitioners for a company in administration could be keen to offload.
A company’s IP may not be easily identified, however, as both the company itself and the insolvency practitioner working for that firm, may not immediately identify the value of a firm’s IP. This is where a full audit of the company’s IP can be helpful.
The negotiated price of intellectual property from an insolvency practitioner can often be quite low. This is mainly due to the relative scarcity of interested buyers, but also because speed is of the essence - every extra day is money lost to creditors. Once you have purchased IP from a company in administration, it’s vitally important to protect these assets. Just as any physical assets should be protected and the value established, the same can be said for intellectual property assets. Without full knowledge and understanding of a company’s IP, the value of that business cannot be fully utilised.
Fitbit and Pebble
Wellness technology firm Fitbit, which specialises in fitness tracking technology and appliances, bought the intellectual property and software assets from the struggling smartwatch manufacturer Pebble at the end of 2016. Pebble announced that as of 7 December 2016, the firm would be filing for insolvency and that its entire IP portfolio, its software and some of its staff would be transferring to Fitbit, which paid between $34 million and $40 million for the assets.
The purchase was intended to include Pebble watch's operating system, watch apps, cloud services and all patents. It remains to be seen how Fitbit will incorporate these assets into its current business.
It’s not just the big hitters that are benefiting from selling and buying up intellectual property, however. Just last month, the Rugby Football League (RFL) bought crucial intellectual property, including domain names and, of course, the team name, of the Bradford Bulls, which had gone into liquidation. In this case, the RFL did not financially benefit from the deal as the IP assets, as well as a range of other assets, were sold onto a holding firm setting up a new Bradford Bulls team that have just started playing. They were sold on for the same price as they were purchased. Bradford Bulls Northern Limited, which had been in administration for a long period - with debts running into the millions - were no doubt pleased to benefit from the sale, however.
The selling on of intellectual property can also rejuvenate a brand or a reputation that has been lying stagnant for years, such as in the case of clothing brand Horrockses. Horrockses was famous for producing cotton garments, popular in the 40s, 50s and 60s, but had ceased manufacturing decades ago. A few years back, the firm’s brand and other IP assets were valued and marketed on behalf of the administrators KPMG. They received strong offers. The brand is now being used again to produce garments that celebrate the firm’s vintage qualities and are once again popular with young women looking for unique feminine designs.
Once you’ve purchased intellectual property, securing and protecting that IP should be a priority. Register the IP; whether it is patents, trademarks or designs; and obtain physical evidence of that registration having been made - this ensures the IP is clearly identifiable and easier to value.
IP developed by an employee of a company is usually automatically owned by that business, but don’t hesitate to include a clause to this effect in employment contracts to avoid any confusion or dispute further down the line.
One additional area to consider is social media contacts and relationships linked to specific members of staff and what happens to these, sometimes extremely valuable, connections when an employment contract comes to an end. Considering these factors in advance and including solutions within contracts is an important part of protecting your business’s IP in the increasingly social media-focused market.
In conclusion then, business buyers seeking to purchase assets out of administration shouldn’t overlook a firm’s intellectual property. In fact, a struggling business’ less visible IP, such as expertise, social media presence, relationships and accounts, and research and development assets can be highly valuable, and are often undervalued.
Security and protection are vital factors to consider, however, and once you have developed your own IP or bought IP from another business it’s vital that you value that IP correctly and protect it as you would any other asset. Remember that these days IP has become the single biggest driver of enterprise value.
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