1. BUYING THE BRAINS - COMMON
STRUCTURAL ISSUES IN SECTOR
SPECIFIC M&A TRANSACTIONS
AIJA TALLINN – 19 APRIL 2013AIJA TALLINN – 19 APRIL 2013
JEROME VERMEYLENJEROME VERMEYLEN

2. Overview
 Structural issues specific to M&A
transactions in IP/IT intensive sectors
 Five issues:
Due diligence
Share deal vs asset deal
Keeping the brains
Financing / debt push down
Data protection

3. Case study
 Acquisition of a fence producer

4. Due diligence
 IP is not limited to registered IP
 Key questions are
Which IP is critical to the business:
trademarks, patents, copyrights
(including on software), domain
names, knowhow, trade secrets etc.
Who has rights regarding the IP:
clients, employees, self employed
contractors, joint venture partners, any
other third parties who may dispute
the rights / use by the target

5. Due diligence (2)
Which rights: ownership, right of use /
licensing right, economic / moral rights
(copyright only) etc.
Which scope: exclusivity, duration,
territory etc.
Who are the target’s brains and which
are their contractual arrangements:
employees, directors, self-employed
contractors, shareholders

6. Due diligence (3)
If target uses cloud computing, which
(contractual) protections are granted
by cloud computing/IT supplier: SLA,
data recovery measures, IP protection
(e.g. software developed by target),
confidentiality of data/information,
limitations of liability etc.

7. Due diligence (4)
Based on the result of the (IP/IT) due
diligence:
⇒ Structure the transaction
⇒ Determine reps & warranties and specific
indemnities
⇒ Remedy problems (conditions precedent or
post-closing)

8. Share deal - Asset deal
 Share deal: all assets and liabilities of
the target remain with the target
No need to organise the transfer of IP
rights / agreements
No need to request new permits /
authorisations
Check IP agreements for change of
control clauses

9. Share deal - Asset deal (2)
 Asset deal:
Transfer of non registered IP (except
copyrights): solo consensu
Transfer of registered IP and
copyright: writing required
Transfer of registered IP: formalities
for the enforceability of transfer
towards third parties
Transfer of agreements requires
approval of co-contracting party

10. Share deal - Asset deal (3)
Change of “data controller”
⇒ Registration with / notification to /
authorisation from local data protection
authorities
⇒ Notification to data subject

11. Keeping the brains
 Registered IP: no big issue
 Tangible and easily identified
 Well-protected and reps & warranties
 Non-registered IP: often key issue in
IP/IT intensive sector
 Existence and value rests with people
 Knowhow and skills
 Often no tangible evidence (except
for copyrights but also evidence
issues)

12. Keeping the brains (2)
 Keep the brains by using the carrot
and the stick:
Keep directors and key employees
incentivized through:
⇒ (Minority) shareholding
⇒ Stock options
⇒ Good leaver – bad leaver provisions

13. Keeping the brains (3)
Keep the sellers incentivized through:
⇒ (Minority) shareholding
⇒ Earnout
Non-compete clause for shareholders,
directors and key employees
⇒ With penalties / lump sum damages

14. Keeping the brains (4)
 Protect the target’s IP
Contractual provisions with all relevant
employees and self-employed for the
transfer of IP to the fullest extent
⇒ Condition precedent to transaction
Non-disclosure clause for
shareholders, directors and key
employees
⇒ With penalties / lump sum damages

15. Keeping the brains (5)
Protect the unregistered IP:
⇒ Protect computers and databases
⇒ Protect clients lists (e.g. “mystery
records” and “intentional typos”)
⇒ Restrict access to IP sensitive
locations
⇒ Log network access, data transfer,
printing, e-mailing etc.
⇒ Introduce good practice guidelines in
the working rules for employees

16. Financing / debt push down
 Can IP be used as collateral for
financing?
Floating charge on the business,
including IP: no problem
Pledge on IP rights? Requirement of
“dispossession” of the pledged assets
⇒ Possible for IP rights?
⇒ Current view: yes (at least for
registered IP)

17. Data protection
 “Adequate protection” required if
personal data transferred or
accessible from outside the EU
Authorisation of data subject
Standard clauses of the EU
Commission to be signed between
data exporter and data importer
US safe harbour list of companies
Countries with adequate protection
No difference if asset or share deal

18. QUESTIONS?
ALTIUS Brussels
Tour & Taxis Building
Avenue du Port 86C/414
1000 Brussels
Belgium
jerome.vermeylen@altius.com
T +32 2 426 14 14
F +32 2 426 20 30