Preparing for the sale of a technology company involves more than looking at financials. For technology businesses, the value of the business often sits in a complex bundle of intangible assets including intellectual property (IP), data rights, software dependencies and unique operational infrastructure. Sellers that invest in pre-sale readiness can avoid risks of price reduction and delays in deal completion.
1. Privacy and data compliance
Data is often the lifeblood of the technology business. Sellers should ensure that the company’s privacy policy is compliant and up-to-date. Similarly, there should be data processing agreements in place where personal data is being shared. Failing to adhere to applicable data protection legislation may lead to a buyer asking for indemnities or price reduction.
2. Policies and procedures
A buyer will expect the company to have appropriate policies and procedures in place, tailored to the nature of its operations. These typically include cybersecurity, data protection, HR, confidentiality, and other relevant governance policies. Buyers will assess not only whether such policies exist, but also whether they are embedded in practice (i.e. employees are trained on them), whether policies are incorporated in contracts, and the frequency of policy reviews and updates.
3. Employee and contractor IP contributions
Technology assets are often built by a blend of employees, contractors and outsourced teams. Buyers will analyse employment IP assignment clauses; contractor assignment agreements; confidentiality and non-compete/ restrictive covenants; and any incentives to retain key technical talent. If IP from contractors hasn’t been assigned, the company may not own its core technology.
4. Review technology stack and dependencies
Buyers will want to ensure that the technology can continue to run seamlessly after the sale. Sellers should list all third-party code, APIs, SaaS tools and infrastructure. From that, sellers should review clauses on assignments and change of control to see if any restrictions apply.
5. Prepare for NSIA screening (if applicable)
The UK National Security and Investment Act (NSIA) may apply to acquisitions and mergers involving sensitive technologies (e.g. AI, cybersecurity, data infrastructure, advanced materials). Sellers should assess whether the company falls within mandatory notification sectors and if it does, build NSIA clearance timelines into the deal timetable. Early scoping avoids late-stage delays in transactions.
6. Review material IT and commercial contracts
Contracts with customers, distributors, licensors and suppliers may be value drivers or deal blockers. Some key questions to consider are: whether such material contracts prohibit assignment or trigger change-of-control consent; whether customer licences are exclusive, perpetual or royalty-free. Sellers often underestimate how contract mechanics affect transferability.
7. Conduct an Open-Source Software (OSS) audit
OSS is software provided under a licence which grants certain freedoms to a licensee, and these are often used when creating software. There are different types of OSS licences. Permissive licences (e.g. MIT licences) will not usually cause a problem but copyleft or protective licences impose restrictive terms. So, buyers will want to understand what OSS components exist in the company’s software and to which licence they are subject. Unchecked use of OSS will cause issues around compliance with copyleft terms and remedial costs for breach of OSS licence. Sellers can use third party providers like BlackDuck or Flexera to carry out their own third-party OSS scan to assess whether OSS are used and the terms of OSS licence it is subject to.
8. Plan for operational continuity
Buyers will want comfort around operational continuity of the technology and business. Sellers should be prepared to confirm that IP and data are fully owned and free of encumbrances; fees, renewals and filings are paid up to date; and any key documentation (IP assignments, employment contracts, licences) exist and are subsisting.
9. Prepare for disclosures around warranties
Share purchase agreements often include warranties confirming: IP and software fees are fully paid; ownership of software and functionality; there are no disputes or infringement claims; no rights to terminate any material contracts or licences have arisen. Sellers could prepare for disclosures around these to establish that these statements are accurate and if not, provide further details.
10. Check ownership of domain names
Domain names are often included in the definition of intellectual property. Domain names used by the company are often not held under the company’s name. In such situations, arrangements should be made to transfer it to the company. The process for domain name transfers depends on the type of web addresses and there will be fees for transfers. Sellers should also check that domain names are on auto-renew to ensure that they have not expired.
If you’re considering a sale of technology companies, make sure you’re aware of the tips above before the process. Reach out to Carmen Yong, Associate in the Corporate and Commercial team on cy@branchaustinmccormick.com.
