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Mergers and Acquisitions (M&A) have become regular parts of the modern business landscape. With major internet giants buying up unicorns and large conglomerates subsuming other companies to increase their market, M&A has become the watchword of the day.  Private equity, driven by the stock markets and high liquidity,  have also been active in adding companies to their portfolios.  

But just as you would always like to look before you leap, it’s essential that you perform the required due diligence before signing the dotted line for an M&A. In any M&A transaction, due diligence helps bring a sense of security to both the buyer and the seller.

Using the information gathered during the due diligence process, the buyer can get a better idea about the different facets of the business they are about to invest in. This allows them to go forward with the deal with greater confidence and certainty. 

Distilled down to the simplest terms, acquisition due diligence refers to an investigative audit of any business that another firm is thinking of taking over. It is done to confirm all facts and figures that may influence the buyer’s thought process while deciding whether to go forward with the deal.  Obviously, the principles laid down for acquisition due diligence are generally valid for investor due diligence, when an investor or venture capitalist wants to take a stake in a start-up or more mature company.  

During the course of due diligence, thorough research and investigations are carried out to reveal all the financial and legal aspects of the business being investigated. This is an essential step that must be carried out before entering into any M&A transaction with the other party.

In the case of an acquisition of a business, due diligence must fully assess the company’s assets and liabilities, legal and financial obligations, and market standing. In short, the entire process is aimed at determining the feasibility of an M&A deal before going through with it.

Why Is Acquisition Due Diligence Important?

It’s common knowledge that just like the humans running them, no two businesses are exactly the same, even if they have similar structures and follow the same business models. Every business has its own products and services, processes, risks, problems, obligations, and investment structure. So naturally, when buying a business, few assumptions should be made at the outset. 

Just think about it: when you’re buying that next car, house, computer or mobile phone, don’t you perform significant market and product research before settling on the right model? Everybody does this simply to ensure that their investment doesn’t go to waste.

Acquisition due diligence is simply a more complex version of this kind of research. It doesn’t really aim to evaluate the valuation of a company. Rather it’s intended to gain a clear understanding of whether the deal would be profitable for both parties concerned.

Here it is important to tackle one common misconception that exists regarding due diligence, and that’s the notion that it only helps the buyer. This is simply not true, as due diligence is equally important for both parties in an M&A transaction.  As much as a company’s balance sheet enables a company to have a snapshot of its financial situation, a full due diligence provides a picture of the whole workings of the company, highlighting strengths and weaknesses and allowing management to better plan for the future.

For the buyer, conducting proper due diligence gives them complete assurance that they are going forward with the correct deal. Also, it helps them obtain all the information required to learn more about the business’s customer-base, partnerships with existing associates, and to discover opportunities for greater synergies.

At the same time, due diligence also helps to confirm any assumptions that you may have made prior to moving forward with the deal. It can also reveal any financial or legal irregularities that may have an impact on the business in question further down the line.  With cybersecurity, money-laundering, data protection and environmental sustainability carrying important financial, legal and reputational risks, investing in, acquiring or merging with a company has direct implications for the investor/acquiror in terms of their own standing in the market.  No investor wants to be associated with a company that has or may be tainted with one of the above issues.

Due diligence has sufficient importance and benefits for the seller as well. It allows the business seller to glean interesting insights about how it operates. It is a little like undergoing a medical check-up.  It also prepares a business for seeking capital from investors or a potential acquiror. It helps the seller better understand the market value of the business and what would be a fair asking price to complete the deal.

The crux of the matter is that without proper due diligence, no business deal can hope to succeed. A merger or acquisition without due diligence is like handing your money over to a stranger you just met on the street. 

So, now we know what due diligence is and why it’s important for both buyers as well as sellers. However, it’s not as straightforward a process as one might be inclined to think at first glance. In fact, there are multiple perspectives from which acquisition due diligence can be carried out. Based on this, due diligence can be further subdivided into the following types.

This is the aspect of due diligence revolving around administrative aspects, such as occupancy rates, facilities management, and workstations required, to name a few. Here, the main purpose of carrying out the due diligence is to evaluate the facilities owned by the seller and also determining whether all aspects of the operational costs are reflected in the financial statements. It also provides a projection of the expected administrative cost the buyer must shoulder in case they decide to go forward with the merger.

This is perhaps the most important type of due diligence due to the fact that it helps decide whether the deal in question is going to be financially viable or not. It involves cross-checking whether financial details shared by the seller are accurate and above board.

Through financial due diligence, the buyer aims to understand all aspects of the seller’s business financials, such as audit statements, unaudited financial documents, projected growth trajectory, inventory and expenditure plans, and its list of assets and liabilities.

During the process of financial due diligence, the buyer may also choose to examine accounts of major customers. They should also undertake a detailed analysis of variable and fixed costs, profit margins, and internal control procedures. Another part of financial due diligence involves examining the seller’s order books along with the sales pipeline in order to create pinpointed projections.

Traditionally, this is a part of financial due diligence but can also be classified under as a separate category. Asset due diligence works to create a list of fixed or variable assets of the seller as well as their locations. This includes but is not limited to machinery lease agreements, sales and purchase schedules of capital equipment, and real estate documents.

For any business, the most important asset is the human resources associated with it. This is especially true of software and high tech companies.  This means that before the buyer can decide whether to actually buy the business, they need to take stock of the HR assets.

This includes analysis of employees and employment contracts, cost-to-company for salary and bonuses, and all HR policies such as sick leaves, annual leaves, and even dispute resolution in case of any arbitrary situation.

In light of today’s climate change scenario, environmental due diligence is an essential part of any M&A deal in the 21st century. This is because if the company that is being bought violated or violates any local or global environmental regulations, litigation risks are heightened. 

Traditionally, environmental due diligence included careful scrutiny of environmental licenses and permits. It should also check all notices and communiqués from the local authorities concerned with environmental regulation. 

Nowadays, environmental due diligence goes much further.  Indeed, with climate change, what is required of companies it to take positive steps to reduce their carbon footprint including requiring that their suppliers also adhere to sustainability goals.  Environmental due diligence is part of a broader set of goals around sustainability.  Companies must have policies and processes to ensure that their actions or omissions are sustainable by design.  Sustainability includes social and environmental impacts.

This one is rather self-explanatory and involves assessing all the IT assets of the seller’s business. This includes hardware as well as software systems, business-critical data, and the workforce interacting with it on a daily basis.

IT due diligence can also involve security risk assessments, vulnerability due diligence, and cybersecurity assessment. It helps create a software checklist that might come in handy in the future.

All businesses have intellectual properties that are vital to their operations and profitability. Most of the time, these assets are intangible in nature and include patents, software algorithms, and even brand names, trademarks, and copyrights; IP due diligence aims to take stock of these items. 

At the same time, this form of due diligence is also vital in determining whether the company is currently involved in any legal implications involving IP violations. So, this can also be thought of as a part of legal due diligence.

Nowadays many companies own technology and develop new products or services.  Software companies in particular have as their main asset, their software and their talented developers.  It is difficult to assess the value of a software program, especially with start-ups, because the source code for the program is kept secret to prevent others from copying it.  As a result, it is often impossible for investors to really assess the product that they are investing in from a technology perspective.  Vaultinum has developed a series of tools that enable a technology due diligence.  

The final type of acquisition due diligence that we’re going to take a look at involves the lifeline of any business: the customers. When you’re a buyer looking to take over a business, you invariably want to take a look at its existing and potential customer base. You’d also like to gain an understanding of the customer satisfaction levels of the business. This is exactly what customer due diligence can help achieve.

It must be mentioned here that the various types of due diligence discussed above aren’t the only ones available. Based on the business and how the buyer is looking at it, there can be many different types of acquisition due diligence. 

As any reader can understand from reading up until this point, acquisition due diligence is a complex and complicated process that involves multiple layers. As such, every M&A process has different requirements, and different steps and methods should be followed to conduct due diligence that fulfills the particular requirements of the deal.

That said, there are some general steps that every business can follow to perform quality acquisition due diligence. In this section, we’re going to take a brief look at each of those steps.

As with any project, the acquisition due diligence process also begins with evaluating what exactly you want to achieve from the exercise. Determining the corporate goals behind the process is essential to its success.

Once your goals are clear, the next step is to take up an analysis of the finances of the seller. This includes checking all financial documents such as balance sheets, tax records, and forecasts for business growth.

This step usually takes the form of a detailed conversation between the parties involved in the M&A process. Here the buyer asks for all relevant documents for auditing, holds extensive talks with the seller, and may also perform on-site visits. In this step, it’s essential for the seller to be highly responsive in order to ensure that the deal goes through.

Next, the buyer analyses the business plans and models used by the target company. This is important in order to understand whether the acquisition will be a good fit for the buyer’s business goals.

In this step, the buyer is required to carefully look at the target company from a holistic viewpoint and assess any risks that might be associated with the deal.

Lastly, the information from all of the above steps is combined and collated by the experts to understand the correct valuation of the target company. This is critical to creating an estimate of the final offer amount.

When it comes to mergers and acquisitions, due diligence is an important step that should not be overlooked. Due diligence for mergers and acquisitions helps ensure that the deal goes fairly for both the buyer and the seller and that possible pitfall can be avoided with ease.

In this respect, Vaultinum can be the perfect partner to help you out. We provide due diligence tools that address many risks. With proven expertise in the domain of acquisition due diligence, we can help your mergers and acquisitions go through without a hitch. 

We even provide a full software audit tool that scans source code for issues and that can be used for performing due diligence audits. Using this tool, the due diligence process becomes more objective and helps decision-makers minimize risks and glean crucial information about the deal being made.

So, don’t wait and go by gut feelings alone; contact us at Vaultinum today for a better experience.

The opinions, presentations, figures and estimates set forth on the website, including in this blog, are for informational purposes only and should not be construed as legal advice. For legal advice you should contact a legal professional in your jurisdiction.

The use of any content on this website, including in this blog, for any commercial purposes, including resale, is prohibited, unless permission is first obtained from Vaultinum. Request for permission should state the purpose and the extent of the reproduction. For non-commercial purposes, all material in this publication may be freely quoted or reprinted, but acknowledgement is required, together with a link to this website.

With major internet giants buying up unicorns and large conglomerates subsuming other companies to increase their market share, M&A has become the watchword of the day. But just as you would always look before you leap, it’s essential that you perform the required due diligence before signing the dotted line in any M&A transaction. Acquisition due diligence helps ensure that the deal goes fairly for both the buyer and the seller and avoid any possible pitfalls with ease.

Learn more about the importance of an investigative audit of a business before acquisition.

Registering your logo is not a legal obligation but it is strongly advised.  You can use your logo in the course of trade without having any trademark rights on it.  However, it will be more difficult to protect yourself in case of a dispute with a competitor who could claim authorship of your visual identity.

Register a logo and anchor your visual identity

The visual identity of a company includes all the visual elements that allow customers to identify the company.  This visual identity includes the logo.  The logo is at the center of the brand image of a company, and from it often derives the graphic charter and the whole visual identity of the company.  Thus, rights obtained on the logo establishes its role at the forefront of the communication strategy, as registration formalizes its role within the company.

In any case, the protection of the company logo fosters marketing stability.  In the event of a change in the logo, and as long as the changes are not substantial, it is not necessary to make a new application.  However, if the logo fundamentally changes, a new registration would be required.

Registering a logo allows you to obtain trademark rights.  These trademark rights are an intangible asset that are counted among your company's overall assets.  Since you have the possibility to commercialize it, in particular through licenses, it forms a key element of your corporate and commercial strategies.  Obtaining trademark rights by registering the logo is also important in cases of mergers or acquisitions since it will increase the overall assets of a company and, a fortiori, the value of a company.

Obtaining trademark rights over your logo gives you a monopoly to exploit your logo for a period of 10 years, renewable indefinitely.  You are therefore the only one who can exploit this particular logo for specified types of products and services in a specific territory.  This implies that you can defend yourself against any individual or company who copies or imitates your logo for these products or services in the specific territory.

Without explicitly plagiarizing your logo, a company may be tempted to design its own with many similarities to yours in order to mislead consumers.  The goal is to take advantage of your notoriety and your reputation in order to convert your customers.  Generally speaking, parasites operate in the same industry.

Registering your trademark is an effective way to shield your company against these practices by allowing you to act before a court of law.

Registering your logo requires to you to identify, beforehand, the scope of your trademark rights by defining the logo, classes and territory.  Once  you identify those elements, it is strongly recommended to carry out a prior rights search in order to establish the availability of your logo.

Once you have your logo and prior to its registration, it is imperative that you conduct a prior rights check in order to establish whether your logo is available, i.e. whether a previous mark is reproduced.  If you do not carry out this search, the owner of an earlier right may oppose the registration of your logo, and a fortiori, prevent you from obtaining trademark rights, or sue you for infringement.  The use of an existing logo without the express authorization of its owner is strictly prohibited.  You will have lost time, money and resources, which could have been saved by a prior rights search.

However, if the search identifies potential difficulties, keep in mind that it is always possible to organize the transfer of trademark rights from the owner to you. 

This prior rights search can be carried out directly on the website of competent authorites or through a specialized law firm. 

A trademark right is composed of a mark that can take many forms.  It can be a logo, word, number, sound, shape, color, movement, hologram, video or a combination of the above. 

For a trademark to be valid, a mark must be distinctive, meaning that it must allow consumers to distinguish the products and services of one business from those of another. 

It must not be descriptive.  For example, you cannot have a trademark over the word "moto" if you intend to sell motorcylcles. 

The mark must be compliant with public order and morality, hence the rejection at the european level of trademark applications such as ‘screw you’ (R 0495/2005-G) , ‘la Mafia’ (R803/2016-1) or any trademark including the word ‘fuck’ (R 0793/2014-2,R2205/2015-5). 

Moreover, the mark must not decieve the consumer, such as the rejection of the trademark 'lactofree' for dairy products in class 05 (R 0892/2009-1).

The monopoly coming from trademark rights implies that you, the owner, are the only one that can use this specific mark for the specific product or services.  This means that if you have a trademakr right over the mark "green sunshine" to sell pharmaceutical products, this does not prevent another company from obtaining a trademark right over "green sunshine" for clothes, as these are totally different products and the consumer would not believe that they come from the same entity.  This would be different if the products were similar. 

Keep in mind that when you select the product and services, you essentially define the scope of your right.  These goods and services are grouped by classes and the set of these classes constitutes the "Nice Classification".  The classification has 45 classes, classes 1 to 34 cover goods and classes 35 to 45 cover services.

It is therefore up to you to select the goods and/or services for which you want to register your trademark.  The trademark right will only cover the goods and services expressly covered in the application, and it is not possible to modify them after filing.  In case you want to amend the application, you would have to file for a new trademark, pay a new fee and you will then receive a new filing date.

It is important to cover all of your activities, with foresight, without trying to file for classes that you will never use.  For every additional class you include, the price of the deposit increases and the more you expose yourself to challenges from other owners.

The principle of territoriality in trademark law implies that your trademark is protected only in the territory in which it is registered. This means that in the event of a dispute, you will only be able to assert your French right against infringements on French territory and not against the use of an identical trademark in Spain. 

The territory depends on the registration office. There are three options:

File with your national authority to obtain rights valid throughout a national territory;


File with the EUIPO (European Union Intellectual Property Office) to obtain rights valid throughout the territory of the European Union;


Extend your trademark rights internationally on the basis of a national or European law via the WIPO (World Intellectual Property Organization).

It is up to the applicant to decide whether they wish to obtain a national, European or international law trademark.  This is part of the company brand strategy, a strategy that must take into account the costs associated with the various filings but also those associated with the defense of the trademark.

Once you have determined your mark, your classes, your territory and the prior rights check has not revealed any problematic anteriorities, you can proceed with the filing of your logo with the competent authorities.  Your logo will then be examined and follow a legally framed procedure in order to determine if a trademark right can be granted.  The procedure will vary depending on the Office chosen, but it will generally follow the outline presented below.

The filing of your logo can usually be done directly online at the site of the competent authorities.  When filing, you must proceed with caution as it is not possible to modify certain elements of the application after filling.  Once the application is completed, you will receive an acknowledgement of receipt indicating the date and number of your application.  The Office will then publish your application in an official journal to inform third parties.

Examination of the application, opposition and observations

The Office will review your application on the substance (e.g. validity of the trademark) and on the form (e.g. payment of fees).  In parallel, the publication of your application in the bulletin opens the opposition period (2 to 3 months depending on the office) which allows the owner of an earlier trademark to oppose the registration of your trademark if they consider that the registration infringes their rights.  During this period, it is also possible for a third party to submit observations to the Office in order to prevent the registration of the trademark (e.g. if it does not comply with other regulations such as those on geographical indications). You will be notified by mail if observations or oppositions have been filed.

If you have successfully answered to the observations or proved that there is no likelihood of confusion between your trademark application and an earlier trademark, the registration procedure for your application will continue. Once your trademark is registered, the Office publishes the registration in an official journal and you will then receive the certificate of registration of your trademark.

A trademark is registered for a period of 10 years.  However, and this is a peculiarity of trademark rights, at the end of this period, you can renew the trademark right indefinitely.  In fine, you can maintain a monopoly for an indefinite period of time, subject to certain conditions.

Owning an intellectual property right is an asset for a company but will only be fully exploited if the company is ready to enter into litigation to defend it.  Litigation is a variable that a company must always take into account.  Having a trademark right, and a fortiori, an intellectual property right, implies the implementation of a strategy to protect these assets.  It is therefore strongly recommended to enlist professionals to monitor your rights and establish a strategy to protect your intangible assets.

The opinions, presentations, figures and estimates set forth on the website, including in this blog, are for informational purposes only and should not be construed as legal advice.  For legal advice you should contact a legal professional in your jurisdiction.

The use of any content on this website, including in this blog, for any commercial purposes, including resale, is prohibited, unless permission is first obtained from Vaultinum.  Request for permission should state the purpose and the extent of the reproduction.  For non-commercial purposes, all material in this publication may be freely quoted or reprinted, but acknowledgement is required, together with a link to this website.

Your logo is the cornerstone of your company's visual identity.  It is through your logo that your customers and clients identify your company and, as such, it must be protected.  Protection under copyright or design law is possible, however, it is trademark law that offers the most adequate protection.

Discover the importance and benefits of registering your company logo and protecting it as an asset

Registering a logo: an essential step in any business strategy

It’s a cautionary tale for investors everywhere.  

The case of Theranos and its founder  Elizabeth Holmes— who at one point was named the world’s youngest billionaire- has been examined numerous times in books, podcasts and documentaries.

The Silicon Valley start-up raised $945 million during its lifespan from various investors, despite having a blood-testing technology that did not perform as promised. When Theranos eventually shut down in 2018, the investor money of course disappeared along with it.  

With the Biotech start-up now featuring as the subject of new Hulu series "The Dropout”, questions around the technological due diligence have started to circulate again. Did investors perform sufficient due diligence? Did they not know what to look for? Or was it normal for Theranos to keep their cards so close to their chest when it came to their technology and data? 

In recent years, the pace of technological innovation has unquestionably been transforming entire sectors of the economy at a rate never seen before. Indeed, in global M&A deals, technology continues to ‘eat the world’ as shown through a record breaking 133% increase in 2021. With the technology sector now making up 20% of M&A deals, with private equity backed M&A reaching $839.6 billion, 2021 was the biggest year for private equity since record keeping began. 

With deals getting bigger and heightened competition causing them to move faster, the time for thorough IT due diligence can often slip away from investors. In fact, it was during a boom time for VC back in 2014 that Theranos quickly raised $633 million from investors who were keen to get a piece of what US President Joe Biden claimed to be ‘the laboratory of the future’.  

Theranos was a consumer healthcare technology start-up that promised a revolution in blood testing by claiming that with one simple drop of blood, their technology could derive 100s of diagnostics and offer fast results at the fraction of regular lab costs. Naturally, this Silicon Valley “unicorn” started to get everyone talking and its founder Elizabeth Holmes was labelled as the next Steve Jobs and named by TIME magazine in 2015 as one of the “Most Influential People in the World”. 

During a time when technological innovation was beginning to unquestionably transform entire sectors of the economy at a rate never seen before, Theranos exemplified that dynamic. The company soon had investors falling at their feet and indeed raised $945 million from famous venture capitalists including Tim Draper, Donald Lucas and Dixon Doll as well as from powerful tech and media moguls such as Larry Ellison and Rupert Murdoch. 

Furthermore, US grocery store giants who had recently moved into prescription drugs and vaccine provisions saw Theranos’ offering as a golden ticket. What could be more convenient for their customers than to come into the store, do a finger-prick blood test, buy their groceries, and pick up their results on the way out? For Safeway and Walgreens, this was a sure-fire way to boost sales and profits. Safeway soon signed a contract with the blood-testing start-up and spent nearly $400 million on the deal. Around the same time, Walgreens also invested $140 million in Theranos, $100 million of which was an “innovation fee.” 

At the time, Walgreen’s chief financial officer Wade Miquelon spoke to the supermarket giant’s CEO about how he thought they “may have found the lead pony” among companies that offer diagnostic tests. However, both companies did little to vet the technology for reliability or accuracy and these kits, that promised to deliver results in 20 to 30 minutes, would in reality take three to five days. 

Despite the rush to get a piece of Theranos, it was revealed that many top venture capital firms actually turned down opportunities to invest because of the company’s insistence on secrecy. Claiming that it was due to intellectual property concerns, Theranos never shared proof with investors that its technology worked or indeed that the results that it produced were accurate.  

So here raises the question around investor due diligence: Could the investors have avoided disaster if they had simply done better due diligence into the technology being proposed by the blood-testing start-up?

Performing Effective Investor Due Diligence 

Actual falsehoods around the claims of a technology, like demonstrated in the case of Theranos, are rare. But underlying issues and weaknesses within the technology of a company are not. This is why behind every successful M&A tech deal, there needs to be in-depth evaluations of the technologies and frameworks in place.  

This kind of due diligence is imperative, because with the promise of innovative change, investors find themselves faced with new and emerging risks that come with the technology, such as software failure, software copyright infringement, data breaches, privacy disputes, widening regulation, open-source software Intellectual Property issues, cyber-threats, among a myriad others.  

Given many recent high-profile losses connected to seemingly careless start up investments, technology due diligence seems to be on everyone’s radar right now. However, it has been around for a while, just usually in the form of traditional audit firms sending in experts to interview IT departments to review the softwareThis may have been acceptable practice 10 years ago, but today, when one single smart car requires over 150 million lines of code compared to just 7 million lines for the 787 Dreamliner, it is simply impractical to review all the lines of code, time intensive and the risk of human error is too high. 

Performing Technology Due Diligence with Vaultinum 

As a trusted third party, specialised in the protection and audit of digital assets, Vaultinum’s tech audits have already saved investors time, money and potential reputational damages. In our experience, more often the issue is less about ‘technology that isn’t there’ but more about the quality of the technology itself. This is why we created the Know Your Software Tech Due Diligence solution. 

Vaultinum’s Know Your Software Tech Due Diligence is an online solution for software due diligence that helps businesses and tech investors mitigate risk, gain crucial knowledge of a firm’s technology and increase the value of the software asset.

More about Know Your Software Tech Due Diligence

Know Your Software Tech Due Diligence is a tool that reviews both the actual code and the internal operational and development processes to help investors reduce and avoid risks. This is done through the following combination: 

1. The Know Your Software Online Assessment 

An online self-audit which analyses Intellectual Property, Cyber Security and Resilience, Third-Party software management, Software development, Product operations & Environment.  

An in-depth software source code scan providing a thorough risk analysis of the software asset, which is then evaluated by our IT experts. 

With Vaultinum’s Tech Due Diligence solution, investors receive a report that includes actionable recommendations made by our IT and Legal experts, giving them the in-depth information needed to decide whether to invest, to walk away from an investment or to negotiate better terms. Furthermore, these recommendations for improvements can help increase the value of the software, thereby increasing the value of the newly acquired company in the long-term. 

What can we learn from the Theranos case? 

In conclusion, for companies seeking investments, it’s integral that they are open to validation in the form of a technology audit with a trusted third party, in order to provide data that proves that their technology has been checked and verified. 

But ultimately, technological due diligence remains the responsibility of investors, as without the correct approach, they’re relying solely on the credibility of the organisation and in turn, risk investing in products or technology that could ultimately be proven unsound. 

Speak to us today to find out how we can assist you in your technical due diligence. 

Theranos promised to revolutionise blood-testing with it's breakthrough technology and at one stage, the company was valued at $9 billion. However, this technology wasn't all it promised to be and investors collectively lost $700 million.  Could they have avoided these consequences if they had simply done better due diligence into the technology being proposed?

Discover the importance of an indepth technology due diligence as we delve into the case of Theranos.

Theranos: A Reminder of the Importance of Technical Due Diligence

If 2021 was a big year for European dealmaking, 2022 looks set to be even better. 

Currently the UK is western Europe’s M&A hotbed, accounting for more than 32% of deals in 2021 (1) and has seen a £1.1 billion increase in domestic M&As in quarter 1 alone, when compared with the same period in 2020 (2). This success looks set to continue well into 2022 with the Ansarada UK Dealmakers Survey showing that 90% of their respondents (senior executives from 50 UK-based firms across investment banking, private equity, and M&A) believe that the number of M&A deals in the UK will increase in the next 12 months, with 54% believing it will increase significantly. (3)

Taking this into consideration, M&As are clearly a focal point for accelerated organisational growth and development as we look to the year ahead. But how can investors take advantage of this promising landscape whilst ensuring that they don't fall victim to the ever-increasing threat to cyber security?

Traditionally, organisations and investors have conducted due diligence covering financial, legal, operations, and human resources. However, when it comes to conducting due diligence of software, this is not always met with the same systematic approach.  Often, this is due to the speed at which organisations are implementing new technology in their everyday operations and partly due to the rapid growth of tech-forward companies. With technology increasingly becoming a primary asset to businesses, new issues have arisen which are overlooked in traditional due diligence.

Recent statistics have highlighted that cyber-attacks are rising sharply in the UK. According to Sophos data, last year 51% of UK organisations were affected by ransomware attacks, with criminals successfully encrypting data in 73% of these attacks (4). Considering these figures, a comprehensive due diligence that assesses both software and source code during the pre-acquisition phase is integral to provide the acquirer with a full view of the potential data breach risks that could lead to serious financial and legal consequences. Furthermore, for those acquiring or merging with a pre-existing company, they run the risk of inheriting hidden data vulnerabilities which can significantly impact the primary company’s business operations, investor relations and reputation.

One of the most renowned cases of insufficient software due diligence resulting in catastrophic consequences is that of Marriott International after their merger with  Starwood Hotels & Resorts. Two years down the line, it was revealed that a huge data breach in Starwood’s reservation system had occurred pre-merger, in which 400 million guest records were exposed through a security flaw. This resulted in a $123 million GDPR fine by Britain’s Information Commissioner’s Office, as well as reputational damage for both Marriott and Starwood.

But if only the issues ended with hidden data vulnerabilities. For any M&A activity in which the target company’s software is a significant asset of the deal, investors must also consider the potential restrictions that open-source software (OSS) can bring. Today, software developers often rely on public code repositories available on websites like GitHub or Stack Exchange, as it appears to be free at the point of use. However, often these licences are offered subject to conditional restrictions. When using OSS to create derivative products or linking source code to OSS, the integrated product becomes subject to these conditional restrictions, which can include making all or part of the code public or paying a fee for its use. In other words, a company may not have full rights to their product or software.

If acquirers carry out a comprehensive due diligence during pre-acquistition, this can help to avoid liability for the target’s previous use of OSS, and any terms relating to its licencing. And bad news for the software supplier, if OSS is found embedded in their software, investors may walk away from the deal entirely, or at the very least adjust its value and/or terms.

But how to avoid these issues? The first step lies within ensuring that investors have carried out a comprehensive software due diligence during the pre-acquisition phase. Following the advances in AI technology, audits like these can be performed through automised tools which thoroughly analyse every line of code to identify any possible cyber vulnerabilities, intellectual property issues and maintainability risks. 

Vaultinum’s Know Your Software Tech Due Diligence

Vaultinum’s Know Your Software Tech Due Diligence offers an online solution for software due diligence that helps businesses and tech investors mitigate risk, gain crucial knowledge of a firm’s technology and increase the value of the software assets. 

Know Your Software Tech Due Diligence offers an online self-audit (Know Your Software Self-Assessment,) which analyses Intellectual Property, Cyber Security, Third-Party software management and Software development as well as an in-depth software source code scan (Know Your Software Code Audit) which provides a thorough risk analysis of the software asset, which is evaluated by IT experts. 

Automated tools such as the Know Your Software Code Audit enrich the traditional tech due diligence by making audits more objective and less susceptible to human error, ensuring that the acquirer’s reputation, business and liability remains protected and in the best possible position to make bold business decisions.

(2) www.ons.gov.uk/businessindustryandtrade

(3) www.ansarada.com/blog/UK-M-A-set-to-surge-in-2022

If 2021 was a big year for European dealmaking, 2022 looks set to be even better. Currently the UK is Europe’s M&A hotbed, accounting for more than 32% of deals in 2021 and seeing a £1.1 billion increase in domestic M&As in quarter 1 alone. Now as we look to the year ahead, M&As will clearly be a focal point for accelerated organisational growth and development making technology due diligence more important than ever.

Discover how investors can protect themselves by performing thorough technology due diligence

Programmers and software developers may be experts in their scientific domain, but ask any of them, and they will let you know that software development is as much an art as it is a science. After all, when a team of coders creates software, it is nothing short of a creative synergy that emanates from them. So, if software code is an expression of the coder's creativity, how can it be protected?

That's where software copyright comes in. Copyright law protects all artistic expressions, and computer software falls under this purview. That's why it is important for all programmers and developers to have a clear idea of how to protect software using copyright. 

Before understanding how to get software copyrights, it is important to understand what it is in the first place. To put it simply, software copyright refers to the use of national and international copyright laws to protect the developer's source code. Copyright laws differ from country to country, but the essence in most cases remains the same.

Algorithms or the logic behind a software tool are not patentable, so you won't be able to file an application for a patent. But the expression of the idea, i.e., the source code of the program, can come under copyright protection. In general, a programmer automatically gets the copyright of any code they create, and this extends for 70 years in most cases. However, the extent of the copyright remains only in the code; the idea behind it can not come under intellectual property protection.

So, now you know what software copyright is and how it works in most cases. But why should you go through the trouble of protecting your software with copyright?

Why It Is Essential To Protect Copyright In Software

Software is unique in the sense that it can not work without being copied. For a software program to run, it must be copied from any tertiary memory device to the system's primary memory. This itself is an unavoidable act of copying.

However, such copying is not considered a crime as it is essential for the software to function. The problem arises when the software code is copied by a third party that aims to gain from such copying. Not only direct copying but the adaptation of software code into another computer programming language may also fall under copyright infringement. 

To prevent this from happening, software developers and publishers distribute their software under different licenses. Despite that, any computer user knows that software piracy is currently a multi-billion dollar industry. The moment a new software application is created, hundreds of copycats surface, often with similar names and functionalities. 

So, if you intend to protect your software against intellectual property theft, then it is essential that you know how to protect software using copyright.

What Are The Benefits Of Protecting Copyright In Software?

Let's face it: software takes time and resources to develop. So, it is only natural that the creators will want to protect the final product against intellectual property theft. After all, the code that you've written might be the only way to solve a particular problem. In case other developers get unfettered access to it, they can use it in any way without your permission.

 This is where copyright comes in. When you get copyright protection for your software, this means you're in complete control of the code's ownership rights. Other developers cannot use the code without your permission. In this way, you exercise effective control over your creation.

As we've already mentioned before, the moment your code's in the compiler, you're entitled to its copyright. Materializing copyright protection for your software is tantamount to declaring to the world that you're the owner of the code. At this point, no one can get away with unauthorized copying of your code.

If you're filing a lawsuit against another party for copyright infringement, then legal copyright makes it easier to claim damages. Today, given the easy methods for software distribution, claims can be as high as hundreds of thousands of dollars. Winning such claims is made easy with copyright.

In most countries, the law doesn't allow the software to be patentable. In such a case, copyright laws are your only method to protect your software from unlawful use. What's more, copyrighted software can give you better terms in different licensing agreements. These are only some of the benefits that you can get from copyrighting software. At the same time, it's essential to know in what ways your software copyrights can be infringed. That's what we're going to touch upon in the next section.

Methods Of Software Copyright Infringement

Most software is distributed under specific End User License Agreements (EULA). End-user license piracy occurs when end-users violate the terms of this license. This can take many forms, such as using unlicensed software or using more copies of the software than the user is licensed to use.

This form of infringement takes place when PCs are sold with unlicensed software preloaded. Many dealers also buy one legal license but make illegal copies of it for multiple uses.

This is the most common form of software copyright infringement, where a duplicate copy or sham replica of software is sold purporting to be the original software.

4. Pirated Distribution Over the Internet

Nothing new needs to be said about online software piracy, where illegal copies of software are placed on third-party servers. These can be downloaded for free in most cases.

How Can You Protect Your Software Intellectual Property?

So, if there's one thing clear from the above discussion, it's this: software is protected by copyright laws, whereas inventions, even those that use the software, are protected by patents. Of course, the details of such protection vary from country to country, with some regions granting patents for software ideas as well.

 Now, the question arises: if software copyrighting is an automatic process and your source code is your own, then why do you need to worry about copyrighting the software in the first place.

The truth is, the problem is deeper than you'd think at first glance. Today, the most valuable businesses in the world are technology companies. Be it Google, Apple, Microsoft, or Samsung, technology is the end-all be-all of the 21st century. Even traditional businesses are massively reliant on technological solutions for running their day-to-day operations.

And wherever there's technology, there's software. And wherever there is software, there are lawsuits. We don't really pay much attention to these aspects when using technology, but major corporations today are fighting legal battles over the ownership of code. As one business creates software, very soon thereafter, others will emulate the functionality and come out with similar tools. Since ideas can not be patented, the question of rightful ownership arises.

But why is code ownership such a messy concept? Ask any coder, and they will tell you that coding itself is a messy and complicated process. At the same time, it is rarely an isolated process where a single genius comes up with a groundbreaking piece of code. Instead, coding and software development is a collaborative process, where many experts come together to create functional code.

And herein lies the problem. What if a developer working in your organization leaves and joins a competitor and shares some parts of the code they've created while in your employ? This is a direct violation of your intellectual property rights and can have immense financial ramifications.

In another scenario, several competing businesses might be working to find the solution to the same problem. Even more, these businesses can often come up with similar solutions and try to market them. Who, then, gets the benefit of being the prime mover?

This question needs to be settled by an independent third party, who can verify which code was created and deployed first. This might be very tough to establish without the help of timestamp-based records.

 And that's where Vaultinum comes into play.

Think of Vaultinum as the digital equivalent of a photo finish. Just as racers decide who the winner is among close contenders with a photo finish, Vaultinum helps ascertain code ownership.

How does it work? The process is simple: when you create a piece of code, you can register it with Vaultinum through our deposit solution.

A deposit is a solution which is recognized in court that allows software developers, digital innovators and database owners to prove the ownership of their creation and secure their intellectual property rights.

When you upload your source code, Vaultinum timestamps it to prove the existence of this code at this particular point in time. Once your code is registered, you can then rely on the Vaultinum certificate to verify and establish your ownership over the code.

What's more, when you're registering your source code with Vaultinum, we also offer to provide escrow agreements that will increase your chances of securing of deals with clients, through the reassurance of client access in the event of supplier failure.

Software development professionals can have peace of mind knowing that with our services, their creative rights will be protected. At Vaultinum, we work with the best techno-legal professionals to protect your software rights. 

10 minutes. That's all it takes to create an account, upload the files,  and obtain a certificate as proof of your deposit. Talk to us today, you won't regret it.

For any creative artist, protecting their work is a matter of paramount importance. After all, any work of art, be it a literary piece, a musical, or a painting, needs protection from unlawful elements looking to infringe upon the creator's rights.  But what about computer software?

Discover the reasons why you should protect Software IP and the best methods for doing so

Why And How To Protect Software Intellectual Property

NETSYSTEM & VAULTINUM: A unique offer in Europe to meet the challenges of digital transformation in M&A transactions.

As M&A transactions are becoming more and more important in the Tech sector, investors are demanding solid guarantees on the quality of software assets: web platforms, software, SaaS, etc. The partnership between Vaultinum's technology and Netsystem's expertise provides investors with the means to thoroughly analyse the quality, reliability, scalability, intellectual property and cybersecurity of the software code they wish to invest in. 

An innovative technology for auditing software

Specialising in the protection and auditing of software and other digital assets for 40 years, Vaultinum has developed Know-Your-Software (KYS), an automated technology due diligence tool that analyses every line of software source code to identify flaws and vulnerabilities. 

"The digital transformation of our economies is necessarily leading to a strong growth in innovations involving software. Existing due diligence processes struggle to provide a comprehensive and reliable analysis of software, which is a major source of risk for investors," said Philippe Thomas, CEO of Vaultinum.  The alliance between Vaultinum Know Your Software and Netsystem addresses this issue by providing an automated, in-depth software analysis solution, complemented by an operational diagnosis of the state of the technology by Netsystem experts."

VAULTINUM'S TECHNOLOGY DUE DILIGENCE SOLUTION

Netsystem, a 360° IT expertise in M&A operations.

Netsystem expands its IT consulting offer to investors by providing them with a methodological and tool-based approach to Tech audits. As assets are more and more often software, the demand for source code audits during M&A transactions is increasing. The analysis of source code poses a number of due diligence challenges that cannot be met by traditional approaches using manual, time-consuming and usually expensive audits. "With risk assessment at the heart of our IT due diligence services, we felt it was important to complement our offering with a comprehensive software audit tool to meet the growing demand for security, intellectual property, quality and compliance in transactions. Thanks to this strategic partnership, Netsystem strengthens its expertise and asserts itself as the only European player in the information systems consulting market capable of addressing all the technological issues involved in mergers and acquisitions," concludes Olivier Cazzulo, CEO of Netsystem.

Netsystem is a consulting firm specialising in information systems and digital transformation for private and public organisations. Netsystem is a key player in IT M&A operations. The company is based in Paris, Aix-en-Provence and Tours. With 250 active clients and more than 10 years of experience in IT consulting and digital transformation, Netsystem has recorded a turnover of €3.5 million in 2021. In 2019, Netsystem is creating a subsidiary entirely dedicated to data protection, called dposystem. 

Established in 1976, the company has helped thousands of digital innovators and investors protect their intellectual property, ensure business continuity and manage software and cybersecurity risks.

As M&A activity increases in the tech industry, investors are demanding strong assurances about the quality of software assets: web platforms, software, SaaS, etc. The partnership between Vaultinum's technology and Netsystem's expertise provides investors with the means to thoroughly analyse the quality, reliability, scalability, intellectual property and cybersecurity of the software code they wish to invest in. The offer is unique in Europe.

Learn more about the partnershup between Vaultinum and Netsystem

Vaultinum and Netsystem Announce Partnership

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