Software Assets in Mergers & Acquisitions

Acquiring a particular software program or SaaS product is often the driving force behind a merger or asset purchase agreement. Perhaps the seller has developed new cutting-edge software, and the buyer, instead of sinking money and time into developing their own product, wants to acquire a finished product that is ready (or almost ready) to deploy. These can be win-win transactions as long as everything is above board, but buyers in these types of situations must be careful in their due diligence about the true state of the software assets, their capabilities, and their limitations. Our partner Albert Carrion goes over several steps that a buyer can take to avoid unwanted surprises below.

Do Your Research

First, ensure that the asset purchase or merger agreement adequately describes the product. The software may be identified by its name, but it is recommended that there also be a thorough description of the software’s features, either in the agreement itself or in a document with a description that is incorporated into the agreement. That way, the buyer has a stronger legal claim if the software does not actually possess the features it describes. The description should reflect features that are still in development – or beta stage – to ensure that the buyer acquires the rights to those ‘coming-soon’ features as well.

The buyer should also consider hiring a software consultant to independently test the software. This is generally done with the cooperation of the seller who will likely insist that the consultant sign a non-disclosure agreement. The consultant’s role is to test the software’s performance against the given description, check for major bugs, and inspect the quality of the source code documentation. This action can inform the buyer of the software’s true readiness and performance from the perspective of an independent third-party expert prior to closing.

Leave No Stone Unturned

Finally, the buyer should learn whether the software source code and any associated graphic elements are registered with the US copyright office. If they are, the registrations should be transferred to the buyer in the agreement. Software can also be protected by patent law if it is novel, trade secret law if the seller has taken reasonable steps to keep it confidential, and the name of the software may be protected by a trademark application or registration. Conducting due diligence on all these possibilities and other intellectual property rights can help ensure that they’re properly transferred to the buyer at closing.

Learning as much as you can about acquired software assets prior to an M&A closing is important for the buyer. Taking these steps will avoid unwanted surprises during the process and contribute toward a win-win transaction that is beneficial to all. If you have any questions or concerns about an imminent merger or acquisition involving software rights and ownership, Richards Rodriguez & Skeith’s Business and Transactional team may be able to help! Contact us today for more information.