Gianna Cricco-Lizza and Jonathan Sharret examine how extended private equity holding periods are creating new opportunities to unlock value from portfolio companies’ intellectual property assets in their American Lawyer article, “Private Equity’s Longer Hold Period May Be Creating an Overlooked IP Opportunity.” The following is an excerpt:
Today’s challenging financial markets are leading private equity firms to hold on to portfolio companies for increasingly longer periods. New value-creation strategies are therefore needed to address delayed exit timelines. Firms should consider approaches that may not have made economic sense under shorter exit timelines but can access hidden value over these longer horizons.
An initiative that was unavailable or difficult to justify when a portfolio company was expected to be sold within four to five years can look very different when the anticipated ownership period is extended out another two or more years into the future. That is particularly true with respect to portfolio companies’ untapped intellectual property assets.
For sponsors holding technology, media, healthcare, industrial, energy, retail and data/information businesses longer than originally contemplated — or underwriting those businesses into continuation vehicles — it may be worth asking one simple question: If the investment horizon has changed, have we reconsidered which intellectual property assets inside the company can bring additional value or be monetized?
A Longer Hold Creates Different Economics
Private equity companies intensively examine targets’ intellectual property at acquisition and exit, but principally from a defensive perspective: Does the target company own its technology? Are there freedom-to-operate issues? Are employees covered by restrictive covenants or NDAs? Have inventors properly assigned rights? Are material licenses transferable? Is the good will covered through active brand protection?
Those questions remain essential. But an extended holding period creates an opportunity for a different inquiry.
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