IP insights: top five M&A tips from an intellectual property perspective

Intellectual property (IP) often underpins the value of a business and, where it does, it can be a critical factor in corporate transactions. It is important to be mindful of the fact that IP comes in many forms – including copyright, trade marks, patents, designs, domain names, know-how and trade secrets – and that different rights will be relevant in different deals.

Where IP is central to the target business, buyers and sellers should expect scrutiny on issues such as ownership, registration accuracy, contractual rights, reliance on open source software and whether IP is properly managed and protected. Below are five key considerations to address early in the process to avoid surprises later on.

1. Identify valuable IP early

IP assets – such as patents, trade marks, copyrights, and trade secrets – can be among the most valuable assets a company owns. They can provide a competitive edge, drive profitability and enhance brand value. For example, a strong trade mark portfolio can underpin brand recognition, whilst well-protected trade secrets can safeguard unique processes or formulas.

Sellers should prepare a full inventory of their IP assets, including both registered and unregistered rights, and ensure they are properly documented, valued and, where applicable, registered. This includes checking that existing registrations are accurate and up to date and that key know-how is recorded to maximise protection.

Buyers should conduct thorough due diligence to confirm what IP exists, whether it is central to the target’s offering and whether the target generates revenue because of those rights. Buyers should also assess how well the business's IP is protected and whether any gaps could impact future use or enforcement.

2. Know your sector

Different sectors present different IP challenges, and IP risks vary by industry. For example, deals within the media and entertainment sector often involve copyright law considerations and moral rights waivers. On the other hand, transactions within the tech sector may focus on patents protecting core innovations, know-how, or trade secrets.

Sellers should consider sector-specific norms and practices and ensure they can demonstrate compliance in line with industry standards. Presenting IP assets in a way that reflects what is typical for the sector can help avoid unnecessary queries during due diligence.

Buyers should identify any sector-specific risks and assess the target's IP position accordingly. Benchmarking the target’s IP against industry expectations can highlight gaps or red flags that need addressing before completion.

3. Review licensing arrangements

The terms of licences – both inbound and outbound – can significantly impact the target’s ability to operate post-completion. Restrictions on transfers or change of control can create issues, and poorly drafted licences can limit flexibility or create compliance risks.

Sellers should check for provisions that could restrict assignment or trigger termination on sale. They should also confirm that any licences reflect the rights the business needs to operate effectively.

Buyers should review key licence terms for accuracy and enforceability, and confirm the rights are sufficient for ongoing operations and not unduly onerous on the target. Buyers should also ensure sub-licensing rights exist where necessary (ie if the target needs the right to sub-licence post-completion).

4. Address challenges with unregistered IP

Unregistered rights such as trade secrets, know-how, and unregistered trade marks can be critical but harder to verify. Confidentiality concerns often limit disclosure, and proving goodwill for unregistered trade marks can be complex. Furthermore, in order to benefit from copyright law protection, works must be recorded in some form, so documentation is key.

Sellers should identify all unregistered IP assets and maintain strong confidentiality measures, putting NDAs in place before sharing sensitive information. They should also ensure that essential know-how is documented to preserve value.

Buyers should verify the existence and protection of unregistered IP and review any relevant agreements for enforceability. Buyers should also confirm that trade secrets are adequately safeguarded and that goodwill in unregistered trade marks can be evidenced.

5. Confirm ownership of IP created by employees and contractors

IP created by employees and contractors can be a complex area, as ownership rights may not always be clear. Under English law, employee-created IP usually vests in the employer, but contracts should confirm this. Contractor IP does not automatically vest in employers and must be assigned.

Sellers should review employment and contractor agreements to ensure the seller has the necessary intellectual property rights created by individuals in order to run the target following completion. Contractor agreements should also include irrevocable licences for background IP and assign new IP to the employer on creation.

Buyers should conduct thorough due diligence of contractor contracts, employee contracts, and any separate IP documentation, to ensure that the IP has either been assigned to the company (in the case of contractors) or automatically vests in the company (in the case of employees).

By addressing these five areas, both sellers and buyers can navigate the complexities of IP in M&A transactions more effectively, to ensure a smooth process and maximise the value of the deal. Proper preparation and due diligence are the cornerstones of a successful transaction.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, December 2025