The CPA Journal

By Lanning Bryer and Melvin Simensky, editors
John Wiley & Sons, Inc., 2002; $75.00;
ISBN: 0-471-41437-9
Reviewed by Robert N. Waxman

The 16 chapters in this book vary greatly in length and depth, and in general its coverage is uneven. Although each chapter is meant to cover one aspect of intellectual property (IP) and mergers and acquisitions (M&A), having many authors creates some overlap and a variety of styles. The index, which is a critical element in professional books, is generally good, but it is not always well integrated into the book. Consequently, finding a discussion of the topic you are searching for may be difficult.

While various valuation techniques are discussed, this is not the source book that will help a CPA actually do an IP valuation. It will, however, be invaluable in performing due diligence in an acquisition. And although it is not the book that “offers all the expert help you need to better understand the issues and the risks in intellectual property assets in mergers and acquisitions,” as its advance publicity states, overall this book is a good resource and will help the CPA practitioner understand many of the complex issues surrounding IP in M&A transactions. One way to consider whether this book will be useful to you is to look at each chapter.

Chapter 1, “Mergers and Acquisitions: An Overview,” is a short summary of why companies merge and the effect of a merger on both the target and acquiring firm.

Chapter 2, “The Role of Intellectual Property and Intangible Assets in Mergers and Acquisitions,” gives extensive discussions of IP as a key driver of the financial value of a firm, the “winner’s curse” (the most cited cause of M&A failures), and the four basic methods of valuing a company (comparable company analysis, comparable transaction analysis, discounted future cash flows, and option valuation). In addition to an overview of some alternative IP valuation methods, such as proxy valuation, calculated intangible value, and return on investment, the chapter also covers the risks of a failed merger, some limited and confused discussion of the accounting rules, and a too-brief discussion of “equity valuation grids.”

Chapter 3, “Intangible Assets and Intellectual Property Accompanying Mergers and Acquisitions,” runs through a possibly useful hierarchy of intangible assets that separates IP from other intangible assets. The hierarchy does not, however, always match the types of intangibles listed in Appendix A to SFAS 141.

Chapter 4, “Valuation of Intellectual Property Assets in Mergers and Acquisi-tions,” has limited discussion of IRC section 482 regulations on the valuation of IP and intercompany transfer pricing, the use of Delaware as a state for the incorporation of an IP management subsidiary, charitable donations of IP, financial and legal reasons to value IP, and valuation approaches.

Chapter 5, “Accounting for Intellectual Property During Mergers and Acquisitions,” has largely been superseded by the provisions of SFAS 141 and 142 and is of no current practicable use.

Chapter 6, “Intellectual Property Aspects of Acquisitions,” is very useful, focusing on the legal documentation surrounding the purchase of IP, including “reps and warranties” and indemnification. It has an extensive listing of intangibles and their legal significance, and a limited discussion of negotiation strategy.

Chapter 7, “U.S. Antitrust and Intellectual Property in Mergers and Acquisitions,” dealing with IP issues involved in mergers and resultant antitrust matters, is much too short to be useful.

Chapter 8, “Intellectual Property and Technology Due Diligence in Business Transactions,” is the longest chapter and one of the most useful for a CPA. It can easily be converted into a guide or checklist to help in the IP–M&A due-diligence process. It focuses not only on assets but on IP risks and litigation, and covers useful industry-specific and operational matters.

Chapter 9, “Intellectual Property, Due Diligence, and Security Interest Issues in Mergers and Acquisitions,” is well annotated with endnotes and contains strategies for conducting due diligence and perfecting security interests. Combined with the previous chapter, this section will give the CPA more information than most other sources.

Chapter 10, “Patent Opinions,” deals with issues surrounding patent law, patent infringement, and the issuing of opinions as to the validity of a patent.

Chapter 11, “International Mergers and Acquisitions: The Canadian Perspec-tive,” is an excellent and extensive discussion of the Canadian legal system, IP, tax issues, and due diligence matters.

Chapter 12, “International Mergers and Acquisitions: The European Perspec-tive,” covers some of the same material that preceded it, but with some new material (e.g., property warranties from the viewpoint of the seller and buyer) and a European slant (Belgium, France, Germany, Luxembourg, and the Netherlands). Altogether, there is very good coverage and lots of information.

Chapter 13, “Intellectual Property Transfers to Holding Companies,” is a too-brief chapter with an overview of the legal and tax issues surrounding the centralization of the ownership of IP, both on- and offshore.

Chapter 14, “Offshore Corporations,” covers some areas of concern involving the transfer of the ownership of IP to offshore tax havens so as to “park” the IP until it is ready for exploitation, or to another company in order to actively manage the worldwide development of the IP. Also of interest is the removal of IP from an entity before its creation by means of a reverse takeover.

Chapter 15, “Acquisition and Licens-ing of Famous Name Trademarks and Rights of Publicity in the United States,” contains an interesting and informative discussion of the rights of publicity and the use of famous name trademarks.

Chapter 16, “Transfer of Intellectual Property upon Merger or Acquisition,” repeats some material in preceding chapters, but also includes an overview of antitrust law and the transfers of trademarks, worldwide patents, copyright assignments, and domain names.

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.