The term “IT business” is intended to cover a broad range of different types of technology businesses including software business, consumer internet businesses, IT system providers, data businesses, telecommunication providers and web-hosting and cloud providers to name but a few.
Structure
In many ways the process involved in the sale of an “IT Business” will be similar to the sale of any other type of business. A sale of a business will take the form of an asset sale or a share sale.
There are certain issues that will have particular significance in relation to the sale of an IT Business (than would typically be the case when compared with businesses in more traditional sectors), some of which have been outlined below.
Intellectual Property Rights
For a buyer the objective is to ensure that it acquires the rights to use all intellectual property rights (IPRs) to conduct the business in the same manner as the seller prior to the sale. These may include rights in patents, trade marks, copyright, designs and confidential information. The buyer will need to conduct due diligence to establish what IPRs are used by the target business. A key question is whether or not the target owns or has sufficient rights to use all the IPRs required to operate the business. The buyer will also be able to draw comfort from the warranties that the seller gives in a sale agreement.
However, before the transaction proceeds to the drafting of the legal documentation, the buyer will need to conduct due diligence to satisfy itself that the business has the ability to use and exploit key IPR, so that the buyer can make an informed decision as to whether to proceed with the proposed transaction.
A further concern for the buyer will be whether the IPR position gives any exposure to disputes with third parties and what level of risk the buyer is prepared to accept.
Licences
There is a key distinction between IPRs which are owned and used by the business on the one hand and those which are used under licence from a third party. Licences come in various forms; those most commonly seen are software, patent or trade mark licences. But other types of licence are less obvious, which appear in research and development agreements and IT services agreements.
In a significant number of transactions, IPRs used by the business being sold are also used by other parts of the seller’s group. In such circumstances the parties will need to formalise the terms on which the rights are to be used. This could be achieved by licensing certain IPRs or by formal assignment of IPRs.
If the business has products which use IPRs licensed from a third party (e.g. relating to software, data or other content) a detailed review of those licences needs to be carried out to ascertain that the rights licensed are sufficient and will transfer with the business on sale. The buyer should establish if the licences provide the business with the necessary rights to be able to exploit the products in all key markets, including (where appropriate) the ability to sub-licence such IPR to its customers and the extent to which the business is at risk of losing those rights.
Database
The sale of almost any business will include its database, for example in the form of client lists, sale and purchase ledgers, inventories and know-how systems. Key aspects which arise in respect of databases include:
- that the seller owns or has an adequate licence to the intellectual property rights in the database;
- that the sale or licence of the database is permitted under the Data Protection legislation (including GDPR);
- that data protection notifications cover the proposed transfer and exploitation of the database;
- that any assignments from third party contractors engaged in producing the database have been obtained.
The Commercial Team at Myerson have worked with buyers and sellers of IT businesses in a wide variety of technology sectors.
