Is your company looking to drive growth through M&A as well as organically grow its own patent portfolio? Portfolio acquisitions are a fast way to strengthen your IP and get ahead of the competition. Identifying distressed IP assets before your competition recognizes these opportunities is the most cost-effective path to successful acquisitions. In this blog post, we explain the six main steps that companies should take to effectively identify distressed IP assets for potential acquisition.
Distressed IP Assets: Finding diamonds in the rough
Portfolio acquisitions are a fast way to strengthen your IP and get ahead of the competition. Companies can save millions in R&D costs by acquiring distressed IP assets at the optimal time, while gaining a strategic advantage over the competition at the same time. Identifying distressed IP assets before your competition offers the optimal and most cost-effective way to do this.
Identifying distressed IP assets requires a methodical approach. There are six main steps to effectively identify distressed IP assets and/or companies.
Step 1: Identify Distress Triggers
The first step for a company looking for distressed IP assets is to determine the parameters or indicators to identify those companies that are or will be in distress in the future. For example:
- Attrition rates of company or change in personnel key roles
- Relevant industry news
- Consumer sentiment on industry products
- Sales numbers or reduced positive cash flows
- Abandoned or decline in fee payment for relevant patents
- A mixture of financial parameters indicating overall financial health
- Recent mergers or acquisitions
Step 2: Identify the IPC/CPC based patent classifications
Before starting a distress analysis, it is very important to identity relevant companies in a particular jurisdiction for distress tracking. This often means determining companies based on some Intellectual property assets as well as based on non-intellectual property-based factors.
- Selection based on intellectual property assets: The selection of relevant companies can be made using IPC/CPC based patent classifications for relevant technology. IPC/CPC classifications are used to find the Assignee companies having active patents in the relevant technology domain which could be acquired or licensed in a profitable way (at lower cost) in case the company shows signs of distress.
- Selection based on non-intellectual property-based factors: Factors such as companies with products already in the market, news related to companies invested in relevant technology, etc. can also be used as a criterion to select a company for distress tracking. Please note that a selection based on Non-intellectual property-based factors will always require a post assessment of company based on intellectual property to find whether the company has some patents (assets) which could be of interest to the client for acquiring or licensing the asset.
Step 3: Run a broad search strategy on a database with these IPC/CPC and jurisdiction as a filter
After identifying relevant classifications for pertinent technology, the next step is to formulate a broad search string (s) based on the relevant IPC/CPC found to select companies based on Intellectual property assets. These search strategies should be run on a high-quality search database to find the assignee companies that have active patents for the relevant technology in the jurisdiction of interest.
For example, the search string for a company with an interest in domestic heat exchangers in the United Kingdom might look like this:
Search String 1: Keywords for Domestic (AND) Relevant Classifications of Heat Exchangers (AND) Jurisdiction= Britain [GB] (AND) Legal Status=” Active” (382 Results)
From this search string, we can extract the assignee/company names along with the patent count of the number of references assigned to various assignee companies.
Step 4: Search Litigation and Opposition data
Apart from the number of patents assigned to an assignee, the count or number of patents of an assignee company involved in litigations (i.e. Litigation data) and the count or number of patents of an assignee opposed or challenged by other assignees, can also be used as a criterion for selection of companies for distress tracking.
- A high count of patents with litigations or oppositions, assigned to an assignee indicates that the assignee has a patent portfolio with global interest and has patents for a trending technology.
- By using distress tracking on these assignees with high litigation or opposition data, we can approach the identified Assignee company at the right time for patent acquisition or licensing that will eventually help save costs.
There are two approaches at this juncture. The first option is to search for the entire list of companies. This essentially means monitoring the entire technology domain by monitoring all the companies in the technology domain on a periodic basis to indicate the ones in which the change happens. In this case, the output should be a report on the company that may change from one period to another. It’s also possible to include input to trim down the list mildly, based on inputs already available.
Alternatively, if the initial list is large, the assignee list must be trimmed based on inputs. There can be multiple scenarios for this assignee selection:
- Eliminate bigger companies with revenues above a certain amount. They also might not want to see the prominent players or the competition in there. The analysis is then performed for all other assignees after eliminating big companies, prominent players, or client’s competitors.
- Include analysis for the top 5 or 10 companies that have a certain number of patents. The analysis is then performed on only these top 5-10 companies.
- Conduct an analysis of all the assignees found in the list to provide a more comprehensive distress monitoring.
The analysis of these assignees can be done for a range of periods, for example: monthly, every two months, or quarterly, or half yearly to find relevant data for the distress parameters we defined in the first step.
Step 5: Monitor Distress Parameters
The next stage is to monitor the distress parameters of assignees in a period (for example a month) to identify the current situation of an assignee. The change in the distress parameter over multiple consecutive periods (for example multiple months of the year) is used to identify distress triggering. This can identify whether the company is inching toward distress.
Step 6: Take action
After monitoring distress parameters for a determined amount of time, companies will have the information they need to take the next steps. An effective distressed IP asset monitoring system should be able to identify relevant companies with applicable IP that are in distress. In addition, this system should provide information about the best time to take action to approach companies for acquisition in order to achieve the best purchase price on strategic patents and licenses.
By purchasing patents and licenses, companies can save millions in R&D investment as this case study shows. In addition, companies can gain significant strategic advantages, expanding into profitable new sectors and geographies by monitoring and acquiring distressed acquiring assets at the right time.
Evalueserve's Distressed Company Tracker
The steps outlined here are essential to effectively target companies and assets for acquisition. However, defining and monitoring the distress indicators to identify potential companies or assets for acquisition can be difficult, if not impossible, to do without the right tools and team in place.
Evalueserve’s Distressed Company Tracker uses an AI engine which scans the web intelligently to gather all the pertinent information around the technologies, geographies and companies of interest. Once this step is complete, we utilize our Mind+Machine approach to tag the information and corelate it to the same data points in previous months. This allows us to flag signs of distress against each trigger accordingly and our traffic light assessment gives an indication of the severity of the change. Once a company identifies a distressed asset of interest, we can perform a detailed quality analysis of their IP portfolio to ascertain the value of the IP from both a defensive and offensive perspective. Additionally, we can compile a company profile to arm you with all the information you may need ahead of an approach to the company.
To find out more about how you can leverage Evalueserve’s Distressed Company Tracker, click here for a case study demonstrating how this works in practice. Alternatively, to get started on your own customized tracker, fill out the form below.