Intellectual Property and Mergers

Nowhere is intellectual property (IP) more critical than at fabless chip suppliers, where IP and personnel are the core of those companies. But even with a strong team and great IP, it is becoming more difficult to secure financing for such fabless companies. As a result, many of those that are in pursuit of growth are looking to merge or be acquired by larger companies.

I recently reviewed this situation with Chris Augur of Intelligent Capital (San Francisco), a firm that has completed $300M in technology-related mergers and acquisitions (M&A) since 1999. We discussed the role of IP in M&A activity.

Q: How does an early-stage fabless chip company's IP affect the sale of that company?

A: This varies. Usually the IP is important, but not the primary value in these acquisitions. Acquirers are primarily seeking a focused team with specialized capabilities and technologies, which are of strategic importance to the acquirer. The ideal team can be thought of as an "IP engine" with complementary, advanced skill sets; practical know-how; sound development and test processes; relevant design tools; product designs; insight in their sector; and protected IP associated with their technology or product. The IP is valued for its own sake and is often viewed as an indicator of the quality of the team.

Q: What can be done to ensure that these companies properly communicate the IP that they own?

A: There are many things that can be done. One of the most important is to build sufficient context in the story itself so that the importance of the company's IP can be readily appreciated.

Another way of enhancing understanding is to put more sunshine on the patent filings that a company has already made. An example would be to look at a single, broad patent application with categories of claims that can be appropriately divided into a number of separate, stand-alone patent filings. These separate patents or filings are more visible when presented, and are usually given more credence than one filing with extensive claims.

To contact Chris Augur, call 1-415-613-9300.