June 8, 2023
An unaccustomed acquirer may encounter a number of potential pitfalls for technology acquisitions. Failure to promptly identify, assess and potentially mitigate specific issues during diligence can undermine the initial rationale for or valuation of the transaction. Moreover, acquirors need to be careful in any assessment to have a pragmatic and accurate understanding of the issues – such that risks are accurately understood with precision and that an acquirer does not either casually dismiss risk on one hand, or conversely, potentially over-react to a hypothetical worst-case scenario that has a very low probability of coming to fruition.
We detail below a non-exhaustive list of top technology sector-specific legal diligence concerns in acquisitions.
1. Ownership of IP
A primary concern in diligence is confirming the target owns, or otherwise has the right to use, the intellectual property it purports to own. Issues can surface in a variety of contexts throughout the chain of ownership—from creation to subsequent transfers to encumbrances via commercial arrangements. While this article does not delve into every potential issue, as a general matter in technology deals, it is critical to understand what intellectual property the target actually owns, or has the right to use, the rights and obligations attached thereto, the extent and scope of any encumbrances, and the transferability of the intellectual property. Below are a few examples of issues...
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