Software M&A: What you need to know before buying or selling software assets

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Elisabeth Mathews
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1 Software M&A: What you need to know before buying or selling software assets A Webinar from Black Duck Software, Clearvision and Kemp Little Copyright 2011 Black Duck Software, Inc. All Rights Reserved. 1

5 Due diligence is becoming more focussed Increase in technology and digital media M&A since Q1 last year leading to: More competition Higher valuation multiples Focus on delivering an efficient due diligence exercise identifying material risks and facilitating the acquisition and integration of the target So, what areas have we recently seen an increased focus on? Integration Information security and data management IP and open source issues Regulatory issues Practical management issues relevant to any diligence exercise 5

facilitating the acquisition and integration of the target So, what areas have we recently seen an increased focus on?

6 Managing a diligence exercise Make sure everyone understands the purpose of the acquisition, including: Key business drivers and issues Plans for the target business Impact for the buyer Set timings and materiality threshold early in the process Pull together an appropriate internal and external team (lawyers, accountants, investment bankers, consultants to undertake code review) Coordination can be very time consuming Consider need for engagement letters, estimates, etc. from advisors Management presentations to legal teams put the business in context and can facilitate an understanding of key issues early on 6

(lawyers, accountants, investment bankers, consultants to undertake code review) Coordination can be very time consuming Consider need for engagement

7 Managing a due diligence exercise If the target is a competitor, manage information sharing risk NDA issues Deal risks how are they presented and graded? For the seller, managing the issues and identifying the golden nuggets Ensure there is an understanding of the interaction between the sale and purchase agreement and due diligence, including: Warranties, indemnities and conditions to closing Assessment of disclosure Data room and general disclosure of the contents of the data room Understand how due diligence is being managed at the target what is their infrastructure? Do they understand the process? 7

agreement and due diligence, including: Warranties, indemnities and conditions to closing Assessment of disclosure Data room and general disclosure of

8 Intellectual Property Why it matters: Significance of IP assets in technology deals Focus on smarter DD analysis deeper review of key assets: what are the key product components? how were they who developed d developed? them and when? what rights protect t them and how strong are they? What can go wrong? Don t have the rights post-deal to continue business Rights have been encumbered Third party IPR claims 8

how were they who developed d developed? them and when?

9 Types of rights: What to look for REGISTERED,, DR, domain names UNREGISTERED, databases, confidential info. OWNERSHIP - Relatively easy to establish - Potential for entitlement claims - Harder to establish as no title documents; - Need to check chain of creation and contracts t VALIDITY AND VALUE - Expensive and often inconclusive - Assess importance: defensive or basis of revenue streams? - Easier to assess validity - Value likely to be linked to product revenues 9

documents; - Need to check chain of creation and contracts t VALIDITY AND VALUE - Expensive and often inconclusive -

10 For every key product component, think about: IP Analysis How is the IP generated? Internal employees Possible encumbrances Licences Consultants External providers Key product components Security Claims 3 rd party components 3 rd party licence terms 10

Internal employees Possible encumbrances Licences Consultants

11 Third party rights Don t forget: What are third-party rights and why worry about them? Impact of claims Not covered by standard DD May impact business operation and expansion How to approach third party rights? Brands: searches Patents: freedom to market opinions Patent Trolls What are they? Potential impact 11

Impact of claims Not covered by standard DD May impact business operation and

25 Risk and Compliance How we can help ClearvisionObligation-free scan of a portion of code to identify any 3PIP license challenges Schedule periodic code scans service (no license purchase required) Purchase Black Duck software licenses Kemp Little The UK s leading technology and digital media law firm. Please contact us if you would like to discuss any of these issues in more detail. Copyright 2011 Black Duck Software, Inc. All Rights Reserved. 25

Intellectual Property in M&A

Intellectual Property in M&A October 23, 2015 Dallas Bar Association IP Section Steve Stein, Jesse Betts, Craig Carpenter Thompson & Knight LLP Today s Topics Steps in M&A Transactions Drivers in M&A Transactions