In today’s high-tech economy, innovation is currency. For many companies, intellectual property (IP) is no longer merely a protective mechanism – it is a core business asset that can define market leadership. Unsurprisingly, IP has become a key driver in M&A activity. Acquirers are not only looking to secure market share but also to gain access to the patents, trademarks, copyright, and trade secrets that fuel technological advantage and commercial success.
Why IP matters in dealmaking
A business with a well-developed IP portfolio offers a compelling proposition in an M&A context. Acquiring proprietary technologies, systems, and know-how allows purchasers to tap into ready-made technology, ideas, or systems without having to start from scratch, which could fast-track innovation. M&A agreements are not simply about absorbing a competitor – they are about obtaining the intangible assets that differentiate the target in the market.
The strategic importance of IP in dealmaking can be seen in several landmark acquisitions. One of the most cited examples is Google’s 2012 purchase of Motorola Mobility for $12.5 billion. While the hardware business of Motorola was in decline, the acquisition was motivated largely by Motorola’s promising patent portfolio, consisting of over 17,000 patents. Google aimed to reinforce its Android ecosystem and defend it against patent litigation from rivals such as Apple and Microsoft. As co-founder Larry Page noted at the time, the acquisition was about “better protecting Android from anti-competitive threats”.
Increased innovation driven by development
To have an edge, rapid innovation is vital. Acquiring a company with a well-developed and protected IP portfolio could decrease a business’s time to market and significantly strengthen a purchaser’s innovation pipeline. A notable example is Apple’s 2012 acquisition of AuthenTec, a biometric security company with more than 200 US patents. This acquisition allowed Apple to integrate fingerprint recognition technology into its iPhone and iPad range, launching the now-familiar Touch ID feature. Interestingly, even after the acquisition, AuthenTec continued licensing its technology to various partners, including Samsung, which used AuthenTec enterprise security in its Android smartphones and tablets. The Apple CEO, Tim Cook, summarised Apple’s approach in a 2019 interview with CNBC: identify technical challenges and then buy companies that address them.
Breaking into new markets
IP can also serve as a bridge into new industries or markets, particularly where entry barriers are high. In 2014, Meta (then Facebook) acquired Oculus VR for $2 billion, entering the virtual reality space. At the time, Oculus was best known for its immersive gaming headsets. However, Meta had broader ambitions, seeing VR as a platform for social interaction, education, and even telemedicine. The acquisition allowed Meta to quickly move into a space that would have taken years to develop organically.
Data as IP: Microsoft and LinkedIn
The growing convergence of data and IP was a factor in Microsoft’s 2016 acquisition of LinkedIn for $26.2 billion. While LinkedIn's value was traditionally seen in its user base and professional network, Microsoft recognised the data itself and the algorithms behind its curation as IP assets that could be integrated into its suite of cloud services. This move expanded Microsoft’s reach into social networking and enhanced the functionality of its enterprise offerings.
Open-source and subscription models: IBM and Red Hat
Another landmark deal underscoring the importance of IP came in 2019 when IBM acquired Red Hat for $34 billion. Red Hat’s open-source software, including its flagship product Enterprise Linux, gave IBM a competitive edge in the growing hybrid cloud market. The transaction highlighted that valuable IP is not limited to closed, proprietary systems. Open-source models can also be of significant commercial value when strategically deployed.
Due diligence: uncovering the real IP value
For IP to drive true value in M&A, it must be properly assessed through comprehensive due diligence. This process includes verifying ownership, evaluating the scope and enforceability of IP rights, and identifying any litigation risks. Several red flags can emerge during due diligence:
Unclear ownership – if the target business uses third-party contractors or collaborators without proper IP assignments, the purchasers may not obtain full rights to critical assets;
Litigation – ongoing or potential infringement disputes can introduce significant risk; and
Weak IP – patents with narrow scope or trademarks irrelevant to current product offerings may offer little practical protection, undermining the expected value of the transaction.
Post-transaction IP integration
Following a successful merger or acquisition, businesses should align and consolidate their IP portfolio management strategies. This includes harmonising filing practices, enforcing IP rights consistently, and integrating IP management systems. Overlooking this step can result in underutilised but potentially valuable IP assets, and missed opportunities.
Key takeaways on IP’s role in M&A
As digital transformation accelerates, IP is no longer a side issue in M&A – it is a central consideration in M&A decision-making. Businesses that understand the value of IP and conduct thorough assessments of these assets are better positioned to unlock rapid growth in innovation to gain a market edge. From Google’s patent strategy to IBM’s cloud ambitions, real-world M&A agreements illustrate how well-managed IP portfolios can transform M&A transactions from tactical plays into long-term value drivers.
