If you had to choose a holiday movie character to handle the due diligence for your IP portfolio to ensure a successful merger/acquisition, which one would you choose? Our resident IP and M&A expert Jordan Pynn breaks down how he thinks 3 popular characters would handle the transaction and what that would mean for the value of the deal on the table…
That year, I spent the season flying to and from New York helping a client close a round of funding that was to be secured by their intellectual property. Naturally, the IP was under stringent review. I had never been to Manhattan before so on that first flight to JFK I watched Home Alone 2: Lost in New York, a favourite. I then watched it again on each flight back that year as I worked.
I was so entrenched in due diligence that I was developing a Tetris Effect and I began looking at characters through the lens of their prospective performance in my role. Let’s check out a few and see who would make the cut in due diligence.
A twist on a familiar tale. A money-obsessed workaholic (Nicolas Cage) reassesses his priorities when given a glimpse into an alternate life one snowy Christmas Eve. He falls asleep in his bachelor penthouse only to wake in a suburban home married to his college sweetheart, with two little kids. Work-Jack drives one of my all-time favourite cars (Ferrari Maranello) and is President of the firm handling a 12-figure pharma merger. Family-Jack learns there is more to life.
He’s got the cool car and M&A experience. Even his wife and daughter have the same names as mine. There’s just one disqualifying action by Jack.
*Spoiler*
He is scheduled to fly to Aspen to close the big merger, only he detours on the way to the airport to make an impassioned speech to his old flame (at… the airport.) He may have done it for love but flaking on a merger meeting would be trouble for my IP manager.
You see, IP quality in M&A is about more than just its immediate financial impact. Potential investors will also be doing a thorough audit of the management and organization of the IP. They may bring in analysts for high-volume Q&A and document requests. They’ll want to know how IP is captured, adjudicated, protected, and owned. They’ll want to know how IP is budgeted, how policy and process are documented and overseen, how inventors are incentivized. They’ll want to see a comprehensive IP Strategy that aligns with corporate objectives. And they’ll want a senior manager who can answer these requests, showing both their knowledge of the company IP and their confidence in its strength.
Approximately 80% of S&P 500 value comes from intangible assets like IP. Forty years ago that number was inverted. One mistake can invalidate a patent, so precision rules. A company with too many red flags may lose the deal even if the tech itself is valuable.
For example, companies without proper IP ownership clauses in employee contracts may see problems like patents with unclean ownership chains from the inventors to the company. What else is missing if they can’t even prove they own their IP! Sorry Jack but bailing on the merger meeting is also kind of a red flag. Pass.
Classic. You know the plot so instead I’ll regale you with a rumoured origin story.
I got married in picturesque La Jolla, where Theodor Geisel, aka Dr. Seuss, once lived in a beautiful home on the top of Mt. Soledad overlooking the hillside and shores. One night (the story goes) a sour and perhaps inebriated Geisel looked down on the town’s holiday lights with frowning contempt. Waking up in rough shape and seeing himself in the mirror, the Grinch was born.
The Grinch worked on an acquisition of sorts, though it was more of a hostile takeover. But in the end, he miscalculated by focusing on gifts and losing the big picture. But his heart grew three sizes that day, so we all won.
The Grinch would be a concerning IP manager. Similar to the great Whoville heist, I suspect his focus would be isolated on patents such that he would forget about managing all the other important IP. His little dog Max would be trying to widen his focus to trade secrets, trademarks, designs, copyrights and more. But he would dismiss these as unnecessary.
I foresee an M&A transaction discovery that a lack of documented trade secret protections resulted in a leak and a key asset now being reverse-engineered by a competitor. Or missing trademark clearances resulting in company and product names that can’t be used outside of Canada without infringement. Worse yet, he is dishonest. Auditors will always find the lies in due diligence. These problems are far worse for Mr. Grinch than some singing Whos. Next.
We’ve come full circle.
Peter McAllister might have the big suburban house and the fancy Burberry coat but we know by now he can’t be trusted with projects involving tracking or counting. Imagine having him in charge of your NDAs or reviewing your contracts for IP clauses. Would you be confident he is performing regular audits on the company’s compliance of open source software (OSS) licenses, or that he even maintains an up to date list of their OSS in use? I would certainly question his attention to detail.
Kevin, on the other hand, is a due diligence rock star. Like a true Wall Street bro he is living by the words of Sun Tzu’s The Art of War, “Every battle is won or lost before it’s ever fought”. Kevin was organized, prepared. He had backups to his contingencies. And he could think on his feet when adjustments were needed. Harry and Marv never stood a chance.
Kevin would have every document, key summary decks, answers to every question with references to supporting docs. And it would all be ready to upload at a moment’s notice. An investors’ dream.
Earlier I referenced the potential volume of IP-related requests coming in from an interested party. Document requests will be both specific (i.e. Joint Venture agreement with Company X) and broad (i.e. any document relating to the purchase or sale of IP rights). Documents may be uploaded to a jointly accessible but otherwise secure location called a data room.
Proper IP documentation, and the storage and organization thereof, means less turnaround time when these requests come in. Investors are used to weeks or months for this information to be returned. A comprehensive IP strategy with superior organization means providing most information within minutes, custom stats within hours, and detailed requests within days. It’s a portfolio showcase, and you want it to shine. Sometimes small things brighten hidden value.
It was always going to be Kevin. One of my most cherished memories is watching Home Alone on Christmas Eve 1990 in an empty theatre with my sister and cousins in Newmarket. I was 8 years old, just like Kevin, and I never laughed harder. Like I said, the other guys never stood a chance.
Happy Holidays Everyone.
About Jordan: Jordan Pynn is the Vice President of Stratford Intellectual Property, joining the company in 2014. He specializes in IP operations and due diligence for mergers & acquisitions. An Ottawa native for 34 years, he now resides in San Diego with his wife and infant daughter.