What is the most valuable asset of a growing business? Its brand! As this has become more apparent, there has been an increasing rise in companies buying brands from their founders – whether to regain control or leverage an established reputation.
Take Ovo Energy, for instance. One of the UK’s largest energy suppliers which did not in fact own the distinct brand. Ovo Energy recently completed a £150m deal to buy the brand from its founder, Stephen Fitzpatrick. A transaction of this kind can be complex and involves a number of interesting intellectual property (IP) considerations. Whether you are a business owner or investor, understanding the implications of brand ownership can help in maximising brand value.
What is being purchased?
Buying a brand is far from just acquiring the name – it is about securing all the IP, established reputation and loyal client base encompassed by it. A successful brand acquisition must understand what assets are in fact being transferred and how they impact the business.
- Trade mark rights – perhaps most critical is the legal ownership of the name and/or logo. After incorporation, trade marks are often registered by the founders, or by a separate entity.
- Domain names and digital assets – an online presence has become just as important as a physical one. Brand deals should also cover the transfer of domain names, social media accounts and digital content.
- Customer base – the brand’s reputation is most often the key asset of any brand acquisition. Securing the goodwill associated with the brand should be factored into any valuation.
- Trade secrets – these are sometimes neglected during acquisitions. If these were established by a founder, ensuring they transfer with the brand is essential.
Thus, it is evident that clarity on what is included in a brand deal is vital in preventing dispute and ensuring a smooth transition.
Legal considerations
Purchasing a brand from its founder, as seen with the Ovo Energy deal, requires careful legal planning. By performing thorough IP due diligence, the buyer will be able to verify if the founder has clear and undisputed ownership of the IP being acquired. The presence of any third-party claims or pending disputes must be resolved prior to completion, or the deal will be at risk.
Companies must also consider the structure of the transaction. A brand acquisition can be structured as an outright purchase, an equity deal, or involve licensing. Licensing allows the founder to retain some control.
Additionally, consideration must be given to regulatory compliance. IP and data privacy laws are strict, (especially when customer personal data is included). Therefore, a brand acquisition must involve careful navigation to ensure compliance with data protection laws. A well drafted contract should detail any restrictions and post-sale obligations to protect both parties from future disputes.
Potential challenges
The Ovo Energy deal is interesting, as rather than choosing to adopt licensing or purchasing the brand outright, the company instead issued the founder, Stephen Fitzpatrick, with £150m in preference shares: an equity based deal. The use of this non-cash consideration means Fitzpatrick retains a financial stake in Ovo Energy. This structure may be influential to future brand deals of a similar calibre; by utilising non-cash consideration, the company can preserve liquidity whilst ensuring the founder receives priority returns.
Furthermore, brand continuity is inevitably at risk during a brand deal. It is important that the transaction does not dilute the value of the brand, or its relationship with its customers. Therefore, alongside a watertight contract, a well-planned marketing strategy should also be adopted.
By anticipating these challenges and having a strategic transition plan, businesses can ensure that they are successful in purchasing their brands from their founders.
Key lessons
Successful brand acquisitions, like the Ovo Energy Deal, highlight the importance of clear IP ownership and strategic deal structuring. Conducting thorough due diligence ensures that all of the brand associated IP is properly transferred without complications.
Choosing the right structure for the acquisition, whether that be a license, equity based deal (as seen in the Ovo Energy deal) or an outright purchase, is paramount in ensuring long term financial and reputational stability. By pairing this with brand continuity, often through ongoing founder involvement, the company can ensure the retention of a loyal customer base. Ultimately, a well-negotiated brand deal can maximise the value of the brand and sets the stage for the company’s future growth.
Get in touch
If you would like assistance with a brand acquisition, please contact Rebecca Anforth (Legal Director) or Annalisa Marsay (Trainee Solicitor). You can reach Rebecca on 07984692100 or you can email her at rebecca.anforth@murrellassociates.co.uk. You can contact Annalisa on 07784358873 or you can email her at annalisa.marsay@murrellassociates.co.uk.
