Selling a business? Why IP exit readiness is a value lever in PE deals

In private equity transactions, intellectual property is rarely just a legal asset. It is often one of the core drivers of value, scalability and exit optionality.

Whether you are a PE fund preparing a platform for sale, a portfolio company approaching a secondary or trade exit, or an investment team assessing downside risk, the same reality applies: unclear or poorly structured IP creates friction, delay and price pressure at exactly the wrong moment in the deal cycle.

Revenue growth and margins matter. But in many PE‑backed businesses, value is fundamentally underpinned by software, proprietary technology, brands, data, content, and know‑how. If that IP is sitting in the wrong entity, subject to consent restrictions, only partially owned, or inadequately protected, it will surface in diligence – and it will affect outcomes.

This article looks at what buyers and investors expect to see, where issues most commonly arise, and how early IP preparation supports deal certainty, valuation and post‑completion integration.

What buyers and investment committees expect to see

From a PE perspective, "good" IP doesn't mean perfection. It means clarity, control and transferability.

Buyers want to understand:

• What IP exists and where it sits within the group.
• Who owns it, and whether ownership is clean.
• How it is used operationally today.
• What restricts future growth, integration or exit.
• Whether (if necessary) it can move cleanly at completion without third‑party consents or restructuring delays.

When those answers are available early – ideally by heads of terms – deals move faster, diligence is more focused, and value discussions remain commercial rather than remedial.

The real cost of leaving IP until late‑stage diligence

In PE deals, IP issues rarely kill transactions – but they regularly erode leverage and increase risk allocation.

Common consequences include:

• Lost negotiating position

Issues discovered late are dealt with under time pressure, often after price and structure have been agreed.

• Costly and disruptive fixes

Emergency assignments, licence renegotiations, trade mark transfers and OSS clean‑ups absorb management time and advisory spend during critical deal phases.

• Heavier risk protection for the buyer

Expect broader warranties, specific IP indemnities, price retentions or escrow holdbacks – all of which survive long after completion.

From a fund perspective, this also impacts deal timetable, investment committee confidence and exit readiness, and can ultimately delay distribution of proceeds to investors and extend the timeline for winding up the fund.

Common pre‑sale IP issues we see in PE and portfolio company exits

• Founder or contractor IP rights that were never properly assigned

Early‑stage innovation often relies on founders, freelancers and development agencies. Unless contracts include precise IP assignment language (and moral rights waivers where relevant), the business may not legally own its most valuable assets.

What good looks like:

A complete, signed set of founder, employee and contractor agreements with clear assignments covering past and future works, enforceable across jurisdictions.

• Growth has outpaced the contractual framework

As businesses scale, legacy licences often fall behind reality – whether in terms of territory, user numbers, product scope or permitted use. Change‑of‑control clauses and non‑assignable licences are a frequent PE diligence flashpoint.

What good looks like:

Contracts that reflect how the business operates today and are assignable or change‑of‑control safe, or at least clearly understood and manageable in a transaction context.

• Brand and trade mark strategy hasn't kept pace with expansion

Trade marks are often:

• Registered only in early markets
• Held by founders or legacy entities
• Misaligned with current brand architecture or product/ service lines

This creates both value leakage and enforcement risk, particularly for consumer‑facing or platform businesses.

What good looks like:

A risk‑based, commercially sensible trade mark portfolio covering key brands, territories and goods/services, owned by the correct entity, with evidence of consistent use.

• Software and open source blind spots

For tech‑enabled businesses, lack of visibility over open source usage and third‑party components is a persistent PE concern. Buyers worry about licence conflicts, security exposure, and obligations that could require disclosure of proprietary code.

What good looks like:

• A software bill of materials (SBOM)
• A pragmatic open source policy
• Clear records of third‑party components and compliance

These don't need to be complex – they just need to exist and be credible.

When should PE‑backed businesses start IP preparation?

Earlier than most expect.

As a practical guide:

• 12–24 months before a planned exit:

Run an IP audit, fix ownership gaps, and align IP with the intended sale perimeter.

• Ahead of major funding or refinancing rounds:

Investor diligence mirrors exit diligence.

• Before entering new markets or launching new products:

Address brand protection and licensing before value is created.

Early action allows IP fixes to be absorbed into business‑as‑usual governance, rather than becoming deal‑critical fire drills.

5 Practical, PE friendly steps you can take now

• Map the IP that drives value

Identify core assets: software, brands, data sets, content, designs, patents, domain names and trade secrets. Record who created them, where they sit, and how they're protected.

• Confirm ownership and usage rights

Review founder, employee and contractor agreements for proper assignment language. Check third-party licences for scope, restrictions and transferability.

• Align IP with the deal structure

If a particular entity or subgroup will be sold, ensure it owns or has robust rights to the IP that underpins the investment case. Allow time for intra-group transfers and filings.

• Rationalise the brand portfolio

Focus on core brands and markets. Clean up ownership, update specifications and capture use evidence where required.

• Put light-touch governance in place

An IP register, SBOM, and short, practical policies (open source, brand use, contractor onboarding) go a long way in PE diligence – without burdening management teams.

The strategic upside for funds and portfolio companies

Early IP readiness delivers tangible PE benefits:

• Faster diligence and cleaner CP lists
• Stronger defensibility narrative at IC and buyer level
• Reduced post‑completion risk and integration friction
• Greater exit optionality (trade sale, secondary buyout, carve‑out)

Most importantly, it keeps IP from becoming a value discount rather than a value driver.

Closing thought

IP preparation is not legal housekeeping – it is value protection and exit strategy.

For PE‑backed businesses, the return on any investment in ensuring early IP clarity is measured in deal speed, pricing confidence and risk allocation, not just legal compliance.

If you are planning an exit, refinancing or strategic transaction, we regularly run focused IP "exit readiness" reviews for funds and portfolio companies – delivering a clear, prioritised action plan that aligns legal structure with commercial reality.