Intellectual Property: 2021 Will See Lots of M&A- and Lots of “This”, Too – by NEIL SISKIND

In 2020, many, heretofore, great companies, with long histories- some public, some private- have failed- as their competitors have scaled.

In many cases, operating profits of, otherwise, great companies have declined or disappeared, resulting in business closures and bankruptcies.

But what remains for these companies, in many cases, is great Intellectual Property (“IP”)- trademarks, copyrights, and patents- that will be ripe for acquisition by distressed asset investors and industry competitors in 2021.  

While, in many cases, companies buy other companies stock just for the acquired company’s IP, a company need not acquire or merge with another company (i.e. buy or exchange its shareholders’ stock) in order for that company to acquire a particular IP asset; individual assets can be bought from a company without buying the entire [operating or liquidating] business and its other less valuable assets- and its legal liabilities, financial obligations, and operational inefficiencies.

In 2021, IP assets of failed or failing businesses can be particularly appealing where their respective owner’s businesses failed, primarily, or solely, during and due to the COVID-19 crisis and to the company’s overall loss of market share to competitors that were able to scale faster and bigger during the crisis and use technology more effectively, rather than because of any lack of market interest in, or customers for, the IP (brand or product). In many cases, the brand or product may be well-like and highly regarded, but the economy and rapidly evolved digital structure of commerce during COVID-19 became just too different and too challenging for smaller companies or less digitally-savvy companies to overcome. In other words, it was the pandemic’s economic effects, and the company’s operations structure and sales methods, and not the company’s products or brands, that caused the business to decline or fail.

Brands and Trademarks

For world-renowned retailers that have closed their doors or that are in the red, their trademarks- their store names- still have meaning to people, and still have value- especially to e-commerce retailers. In such cases, an existing e-commerce retailer (or a private equity acquirer of such a trademark) can set up an e-commerce company/division and website/webpage for products to be sold under that acquired store-name/trademark.

For manufacturers that have failed or are failing, their proprietary trademarks– their company name or product brands- often have wide-notoriety, and, thus, value to another company with better operational efficiencies and more fully-developed direct-to-consumer sales channels. In such situations, an existing e-commerce or large brick and mortar/multi-channel retailer could consider buying the trademark and making it a “house brand” (a/k/a a private label), or a larger manufacturer that gained market-share and thrived in 2020 could buy the trademark and implement the brand and branded product-line into its existing manufacturing capabilities and cost structure to sell through its existing wholesale or direct-to-consumer distribution channels.

Content and Copyrights

For content providers- such as newspapers, magazines, and production companies- that have folded or are increasingly unprofitable due to to online competition for users, it’s not only their nationally and even internationally known names and trademarks that may have value, but it’s also their libraries and catalogs of decades of copyrighted content (print, film, or music) that could remain valuable to profitable online content providers. One way to capitalize on this would be for a social media company to create a proprietary content division with a pay-per-view/download format over its digital platform; or, such a company could offer the content for free over its platform to attract more users. Another possible scenario is for an existing old-line media company to add the exclusive content to its existing library of entertainment offerings to use or license for use on TV or over other companies’ websites, or it can beef-up its proprietary content library and launch its own a direct-to-consumer streaming service to compete with the large digital content streaming companies.

Technology and Patents

As smaller technology companies burn cash and go bankrupt while swimming in the wake of their stronger competitors, their clever and revolutionary patented technologies can outlive their operations. Inventors that have lost any path-to-market in industries and sectors controlled, more and more, by large corporations in those markets, can sell potentially valuable assets inside of or prior-to filing a Chapter 11 or Chapter 7 bankruptcy. Such a scenario could allow for another existing technology company to add a new proprietary product-line based on those acquired patents to its existing offerings and then capitalize on its own brand awareness and existing distribution channels to rapidly scale sales. Or, a private equity group could buy a strong patent and launch an entire well-funded company around it with the objective of exiting through a public stock offering or an eventual sale to a larger technology company after proving sustainable demand.

2021 could be a banner year for IP transfers due to the COVID-19 crisis that rapidly shifted the structure of the economy and companies’ business models, allowing large companies to grow larger, leaving, otherwise, successful companies with popular products and well-known brands, behind. In the coming year, we will, see unprecedented opportunities to buy famous brands, recognizable content, and technologically-advanced patented products whose owners have lost their respective abilities to be profitable in 2020, and thereafter, in a marketplace where the big just get bigger and more powerful, and where companies either “scale … or fail”.

Single Family Homes: The New “Safe Haven” Trade? by NEIL SISKIND

As Treasuries offer little in the way of yield and have downside risk to principal, today, Wall Street has been wrestling with how to re-define “safe haven”. It’s worth thinking about single homes as the closest thing to a “safe haven”. I’m not talking about a mortgage-backed security or other debt instrument secured by mortgages on highly-levered properties, I’m talking about single family home investment funds or REITS, or direct investments in houses.

You may be thinking that real estate crashes are a big risk- especially as high demand and low rates make things feel “bubbly” . But look at the single-family home rental market since, and following, the financial crisis, and since and from the pandemic. It’s been one of the things that got stronger in both these crises (Amazon, the business and the stock, also expanded in, and following, these events. I suppose one could say, “So goes America- so goes Amazon in the opposite direction”).

The thing that makes single family homes such safe investments is that they do well in good and bad economies. This assumes that any bad economy is caused by something other than a housing crash or crises, itself. Historically, economic slowdowns, recessions, and depressions are caused by rising interest rates due to “good” inflation (rising wages and rising demand). The low interest rates that follow a Fed-induced slowdown (by hiking interest rates), combined with higher bond yields due to inflation, the usual causes of a slowdown, is a good time to buy a single family home, because both prices and rates are low at the same time due to a bad economy. Low interest rates due to a stock crash and a resulting economic crisis, or due to a pandemic and an economic crisis, mean a weak economy. As interest rates and bond yields go lower to counter or stimulate a weak economy, that can be a good time to buy homes, as in 2009-2019, and like now.

It is highly unusual for a housing crisis to cause a weak economy. Clearly, it happened in 2007. But this was actually a financial event, not a housing event, as financial markets and financial instruments allowed for the housing bubble to expand until it popped.

Single family houses in decent neighborhoods will either appreciate in value, maintain their value, or throw off yield (rent)- depending on the economy; just as they have, pretty consistently (save for the 2007-2009 period for the reasons stated above) since the 1950’s.

A future housing crash is unlikely, since well-funded, long term investors are now a large part of the single family market. And as well-financed corporate investors are, now, in these markets for the long-run, due to structural changes to the economy (persistently low inflation and low safe haven/Treasury yields), inventory available to homeowners is smaller- and, if the homes are in the right neighborhoods, such as those with good schools- the downside risk to rents (i.e. yield) is limited, even as interest rates rise- perhaps, especially as they rise and home ownership becomes less affordable and rentals are in greater demand (and there still is upside risk to value for well-located homes). If rates and yields rise because the economy is strengthening, with jobs and wages growing, this, too, provides upside risk to this market. And real estate is not liquid, like stocks, so, these investors can’t just bail from the asset on a whim. They’d have to sell other more liquid assets (equities, credit) first if they saw a market change on the horizon.

If yields rise for more ominous reasons, such as due to the growing debt and deficit, stocks and bonds are still more risky in such event than homes in good neighborhoods. Remember that certain stocks can rise during time of rising rates and yields “if” those rates and yields are rising due to growth and inflation and pricing power), and not only due to growth of the federal debt- which is bad for stocks “and” for bonds.

With all the low-cost debt capital, including that from private equity, in single family home markets seeking capital appreciation, with others in these markets seeking bond alternatives- more yield than a Treasury with principal protection- we may be witnessing one more structural change to the economy in addition to the many others we are living through:

The permanent use of single family homes as safe haven yield producing investments for Wall Street (private equity) and its clients.

In other words- as bond alternatives.