Relevance of patents in M&A transactions

Economists have studied the relationship between patents and M&A activity but there is remarkable lack of data to show which role, if any, patents play in M&A transactions. Antti Saari, wrote his master’s thesis for his Finance study at the Aalto University School of Economics (Finland, September 2010) on this subject[1].

Below are his conclusions:

  • Having a patent assigned to the target increases the deal value by $250,000 on average

–      The increase in deal value is decreasing in the number of patents

–      Especially the scope and INPADOC family sizes increase the value of a patent

–      Also, the economic value of the patent is paid by the acquirer, and thus does not immediately result in a value increase, but does not either result in a value decrease offsetting the value increase in the target

  • Liquidity has a significant price for both the acquirer and the target

–      At times of high M&A-activity, the target is valued higher, and the acquirer also benefits more

–      At times of high credit spreads, both the target and the acquirer lose relative to other time periods

  • Opting for becoming a target at times of high IPO-activity may signal that the target would have been a poor-quality IPO

–      The evidence regarding target valuation is inconclusive, but that regarding acquirer valuation does support the above conclusion

  • Increased distance between the target and acquirer destroys acquirer value inconclusively, and target value at large enough distances

  • Patents provide valuable information to acquirers

–      Whenever information decreases in one dimension, the acquirers aim to increase it in another (for example, when the geographic distance between the target and the acquirer grows, the target is more likely to have patents)

  • The absence of information has a steep price for acquirers and targets alike

–      Unlisted high-tech firms are acquired at discounts over 10%-points higher than unlisted non-high-tech firms

–      Also, acquisitions of geographically distant firms are punished by the market

[1] The Price of Patents, Liquidity, and Information: Evidence from Acquisitions of Unlisted European High-Tech Targets

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