Member Glenda Anderson Speaks: License Back by Vertical
The case at hand was brought by the CEO of a company receiving interest from private equity firms to purchase the company’s vertical solutions at reasonable multiples of revenue. However, these firms were not valuing this IP.
If you were in this situation, what would you do?
After you spin-off the IP into an independent company, license it back to your company and other companies with separable agreements, each focused on a specific vertical.
We often find ourselves in positions where we have IP that is valuable in more than one vertical. Yet our company at that time can only exploit one or two of those verticals. Your instinct to spin off the IP to maximize value is spot-on. I would suggest licensing back just the verticals that are relevant to the business you’re running, thereby allowing the licensing company to issue further IP licenses in other verticals. Hire a CEO to run the licensing business, so you can focus on your core business. And remember, the terms that this independent company grants your company can change over time. That’s par for the course.
As you license back specific vertical pieces of IP, ensure that you have separable agreements if you expect to sell off pieces of your business one vertical at a time. By splitting the license itself into the verticals, you can sell that portion of your business without having to renegotiate the primary license. I’ve seen this strategy work in life sciences where a holder of broadly applicable IP creates multiple exclusive licenses for various medical indications. In this situation, the license holding company acts as a general purpose platform for breakthroughs in areas as diverse as cancer and neurology. Why focus your IP on only one area, when the same asset could catalyze discoveries – and revenue – in multiple areas?