Preparing to Sell Your Technology Business? Here's What You Need to Know

Intellectual property (IP) is often one of the most valuable assets of a technology business.

A potential buyer will want to ensure it acquires all material IP rights as part of the transaction.

Sellers should therefore conduct a thorough review of the IP used within the business and verify ownership of all key assets.

Where the seller forms part of a wider group of companies, it is important to establish which group entity owns the relevant IP and whether ownership aligns with the business being sold.

If IP does not sit within the appropriate entity, assignments and licences should be put in place before the sale process begins.

A further key issue is confirming that the business owns the IP it believes it owns, particularly where proprietary software, algorithms, platforms or other technology represent a significant proportion of the business's value.

Where a third-party developer for the business has created IP, it is advisable to ensure that there is a written agreement in place with the third-party developer and that the IP has been correctly assigned to the business, as the default position under the law is that the IP is the property of the creator (i.e. the third party developer, even where the business has paid for such development work).

If no terms are in place or these rights have not been assigned, the technology business may seek confirmatory deeds of assignment of such IP before completion.

A seller should also ensure any registrable IP is registered so that the public records reflect the actual position.

Technology businesses often provide outsourced services for their customers.

The seller should ensure that all its outsourcing terms are up to date, including any service levels and data processing terms provided to its customers.

A key issue to identify is whether transferring the technology business to the buyer will trigger a transfer of employees under the TUPE Regulations 2006.

To prepare for this, a seller should identify those employees who are or may be in the pool of transferring employees at the time of the transfer, as this will not only assist with the due diligence process but also with the seller's obligation to provide specified 'employee liability information' at least 28 days before the transfer.

Many technology businesses process a large amount of data.

After acquiring a target business, a buyer will want to ensure it complies with data protection legislation, as large penalties can be imposed for non-compliance.

Therefore, a seller should ensure adequate data protection policies are in place, both internally (regarding its employees) and externally (regarding its customers).

There are also many ways a technology business may transfer data outside of the UK, such as when it provides hosting services using servers based elsewhere, when data is transferred between international group members, or when it relies on third-party service providers based outside of the UK.

In such circumstances, the seller should ensure appropriate measures to protect the transferred personal data and consider whether additional contractual terms are required to ensure the legal transfer of personal data.

Download our free Selling a Technology Business Checklist to help you prepare your business for sale, identify key legal, commercial and practical issues, and get ahead of buyer due diligence.

Whether you're planning a sale in the near future or simply want to understand what buyers will be looking for, this practical checklist provides a useful starting point for your preparation.

This checklist is provided as a general guide only and does not constitute legal, financial or tax advice. Every business sale is different, and the issues you need to consider will depend on the nature of your business and the proposed transaction. If you require advice tailored to your circumstances, please contact our Corporate and Technology team.