Billions of dollars are spent annually on technology mergers and acquisitions in Turkey. These deals have many hidden pitfalls, especially those related to the transfer of ownership of technological developments. Therefore, for their own safety, buyers should check their investments through due diligence of technological M&A in Turkey, and never skimp on this.
Due diligence verification of the target object before the transaction enables buyers to:
- Confirm or refute assumptions about the transaction;
- Collect information for planning integration;
- Identify potential risks and, based on their analysis, make a decision on the feasibility of a purchase.
If you are considering a techno M&A deal in Turkey, here is our brief overview of Intellectual Property Rights Due Diligence (IPR).
Buying tech startups in Turkey has been a trend of the last decade. Buying early-stage startups is high-risk, as not every technology is successful. At the same time, successful startups are rapidly increasing their value. Therefore, the acquisition of this kind of company will create more value, the earlier the purchase is made.
The strategy implies work in three directions:
- the buying company must be ready to make an investment long before competitors and the market as a whole see the potential of this technology;
- management must be willing to bet on several technologies, implying that some of the technologies will not work.
Therefore, due diligence in such transactions plays a decisive role.
Intellectual property generators
When conducting due diligence verification, it is critical to assess the ownership of intellectual property rights.
An employee can obtain copyright protection in Turkey when creating an invention. This ownership can be transferred to a third party in a written agreement. The employer can automatically use the financial rights associated with copyright.
If you are interested in registering a patent in Turkey, then it is important to follow the established rules. The employee who is the author of the development must notify the employer of the invention in writing. The employer, in turn, can make a request for the rights to an invention within 4 months after notification. Only then is the right transferred to the employer. The due diligence procedure should determine whether the ownership of the invention is being respected in due course.
Unless otherwise provided by an employment contract, an employer can acquire ownership of an industrial design in Turkey created by an employee as part of his job responsibilities.
Licensed Intellectual Property
Since the license agreement only grants the licensee a contractual right, the licensee cannot have any claims against the acquirer when transferring basic IP rights in Turkey. Unless the license agreement is registered in the appropriate registry for the respective IPRs.
Due diligence of software in Turkey
The due diligence process is closely related to the nature of the proposed transaction. A software audit is usually carried out to transfer assets to a technology company in Turkey.
When it comes to acquiring shares in a Turkish technology company, access to the raw data is usually not required, as the copyright remains with the target company anyway.
Often a target's assessment is highly dependent on its software products or services. For them, in fact, the deal is being made.
In this case, access to source code or the provision of audit data may be required as part of the due diligence process.
Additional areas of verification
Big data and therefore data protection regulations are important topics in Turkey. As part of evaluating the business model and its fit, they should be considered if the company collects or processes any data (most often customer data). It is essential here to find out whether the consent of the data subjects has been properly obtained and whether the data is processed in accordance with the law. For firms engaged in artificial intelligence, data processing is critical.
For other areas, such as the registration of a banking institution in Turkey or launching a Turkish financial services company, where regulatory measures have already been taken, the business model of the target is carefully analyzed. This is to verify whether the company's products/services are subject to any licensing requirements under applicable law.
If you are interested in registering a fintech company in Turkey that is already licensed, the due diligence process turns into an investigation of a possible license violation by the target company.
Planning a technology merger in Turkey? – A good solution, in this case, would be to request advice on the regulation of technology M&A in Turkey from legal professionals of our company. Please reach out to us by filling a feedback form below.