Intellectual Property Assets in Mergers and Acquisitions

By Waxman, Robert N. | The CPA Journal, January 2003 | Go to article overview

Intellectual Property Assets in Mergers and Acquisitions


Waxman, Robert N., The CPA Journal


INTELLECTUAL PROPERTY ASSETS IN MERGERS AND ACQUISITIONS By Lanning Bryer and Melvin Simensky, editors John Wiley & Sons, Inc., 2002; $ 75, 00; ISBN.- 0-4 71-4143 7-9

The 16 chapters in this book vary greatly in length and depth, and in general its coverage is uneven. Although each chapter is meant to cover one aspect of intellectual property (IP) and mergers and acquisitions (M&A), having many authors creates some overlap and a variety of styles. The index, which is a critical element in professional books, is generally good, but it is not always well integrated into the book. Consequently, finding a discussion of the topic you are searching for may be difficult.

While various valuation techniques are discussed, this is not the source book that will help a CPA actually do an IP valuation. It will, however, be invaluable in performing due diligence in an acquisition. And although it is not the book that "offers all the expert help you need to better understand the issues and the risks in intellectual property assets in mergers and acquisitions, as its advance publicity states, overall this book is a good resource and will help the CPA practitioner understand many of the complex issues surrounding EP in M&A transactions. One way to consider whether this book will be useful to you is to look at each chapter.

Chapter 1,"Mergers and Acquisitions: An Overview," is a short summary of why companies merge and the effect of a merger on both the target and acquiring firm.

Chapter 2, "The Role of Intellectual Property and Intangible Assets in Mergers and Acquisitions," gives extensive discussions of IP as a key driver of the financial value of a firm, the "winner's curse" (the most cited cause of M&A failures), and the four basic methods of valuing a company (comparable company analysis, comparable transaction analysis, discounted future cash flows, and option valuation). In addition to an overview of some alternative IP valuation methods, such as proxy valuation, calculated intangible value, and return on investment, the chapter also covers the risks of a failed merger, some limited and confused discussion of the accounting rules, and a too-brief discussion of "equity valuation grids."

Chapter 3, "Intangible Assets and Intellectual Property Accompanying Mergers andAcquisitions," runs through a possibly useful hierarchy of intangible assets that separates IP from other intangible assets.The hierarchy does not, however, always match the types of intangibles listed in Appendix A to SFAS 141.

Chapter 4, "Valuation of Intellectual Property Assets in Mergers and Acquisitions," has limited discussion of IRC section 482 regulations on the valuation of EP and intercompany transfer pricing, the use of Delaware as a state for the incorporation of an IP management subsidiary, charitable donations of IP, financial and legal reasons to value IP, and valuation approaches.

Chapter 5, "Accounting for Intellectual Property During Mergers andAcquisitions; has largely been superseded by the prov sions of SFAS 141 and 142 and is of no current practicable use.

Chapter 6, "Intellectual Property Aspects of Acquisitions," is very useful, focusing on the legal documentation surrounding the purchase of IP, including "reps and warranties" and indemnification.

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