REPRICING CORPORATE INDIA: HOW INTANGIBLE ASSETS ARE RESHAPING M&A STRATEGY

April 1, 2026

Debanjan Ranu

Rajiv Gandhi School of Intellectual Property Law, IIT Kharagpur

Introduction
The corporate boardrooms of Mumbai, Bengaluru, and Gurugram are currently witnessing a quiet but violent shift in the way companies are valued. For decades, the ritual of the merger and acquisition process was anchored by the green eyeshade of the financial auditor. If the books were clean, the cash flows steady, and the tax liabilities accounted for, the deal was deemed solid. But in 2025, that approach feels like checking the oil in a car while ignoring the fact that the engine software is pirated and the steering wheel belongs to a different company. Intellectual property due diligence has moved from being a late-stage legal checklist to the very heart of the transaction, often carrying more weight than the financial audit itself.

This change is not just a trend for the tech sector. It is a fundamental rewiring of the global economy that has finally hit the Indian market with full force. In 1975, a company’s value was mostly found in its physical stuff like factories and land. Back then, intangibles were only about 17 per cent of the value of the S&P 500. Fast forward to 2020, and that ratio flipped completely, with intangible assets making up a staggering 90 per cent of market value. In India, recent studies on purchase price allocation show that for many sectors, nearly a third of the total deal value is now tied directly to identified intangible assets and goodwill.

Background

Financial due diligence is essentially a look in the rearview mirror. It verifies what happened in the past. It checks the quality of earnings, the accuracy of balance sheets, and the reliability of past cash flows. While this is important for making sure you aren’t overpaying for yesterday’s performance, it tells you almost nothing about the company’s ability to compete tomorrow. In contrast, intellectual property due diligence is about the structural integrity of the future. It investigates whether the target company actually owns the “moat” that protects its profits. If a company has great revenue but its core technology is built on a shaky foundation of unassigned patents or messy open-source code, that revenue can evaporate the moment a competitor files a lawsuit or a key founder walks away with the source code. Relying solely on a financial audit in a modern deal is like buying a house based on the owner’s bank statements without checking if the house has a foundation or if the owner even holds the title to the land.

Consider a scenario where an Indian food-tech startup shows massive growth. The financials look incredible. The accountants see a path to profitability and high user retention. However, the IP due diligence reveals that their proprietary delivery algorithm was actually built by three freelance developers in Eastern Europe who never signed an assignment agreement. Legally, the startup doesn’t own the very software that makes it special. The financials might say the company is worth 500 crores, but the IP reality says the company is a walking lawsuit.

Main Discussion: Indian Regulatory Catalyst

India’s specific legal and tax environment has made the move toward IP rigour even more urgent. A major turning point came in 2021 when the Indian government amended the Income Tax Act to stop companies from claiming depreciation on goodwill. Previously, an acquirer could simply label a huge chunk of the purchase price as “goodwill” and get a tax break on it over time. Now, that is gone.

This change has forced dealmakers to be much more specific. To get any tax benefits, they have to identify and value specific intangible assets like brands, customer relationships or patents. This means the IP due diligence must be much more granular because the tax department is now watching exactly how you split up the value of the intangibles. You can’t just call it all “goodwill” anymore; you have to prove that the brand has a specific value and that the patents have a certain remaining life.

The implementation of Ind AS 103 has further complicated things for Indian companies. This accounting standard requires that assets and liabilities acquired in a deal be measured at fair value on the day the deal closes. This includes intangibles that might not have even been on the target’s balance sheet before the acquisition. In sectors like telecommunications and technology, a relatively high proportion of enterprise value is now allocated to things like licenses, rights and customer relationships. If the due diligence fails to verify the validity of these licenses, the entire financial model used to justify the acquisition price collapses.

Startup Reckoning of 2025

The year 2025 has been a bit of a reality check for the Indian startup ecosystem. We have seen a massive wave of closures, with over 11,000 startups shutting down in the first ten months of the year. This is a 30 per cent increase from 2024, and it marks a shift from a growth-at-all-costs mindset to a proof-of-profitability requirement.

In this environment, financial due diligence often reveals “bloated” cost structures and weak unit economics, but it is the IP due diligence that explains why the company failed or why it is worth saving. Many of these failed startups built solutions that had no real product-market fit or were easily copied by competitors because they lacked a defensive IP moat.

The startups that are surviving and thriving are those in “Deep Tech,” AI, and B2B SaaS. These companies usually have clearer revenue models and, more importantly, they have assets that are actually defensible. When a larger company looks to acquire one of these startups now, they are looking past the “vanity metrics” like gross merchandise value or user growth. They want to know: “Who owns the code?” and “Is this technology actually novel?” The shift here is that due diligence has moved from being valuation-focused to value-focused.

“Work-for-Hire” Trap in Indian Context

One of the most dangerous areas in Indian M&A is the assumption of ownership over copyright and software code. In India, the rules for who owns the IP depend heavily on whether the person who made it was an employee or a contractor. Under section 17 of the Copyright Act, if an employee creates work as part of their job, the employer is usually the first owner of the copyright. But here is the real kicker: this does not automatically apply to independent contractors or consultants. For those people, they own the IP unless there is a specific, written agreement that says otherwise.

In the rush of the Indian startup boom, many companies used offshore developers or freelancers without getting proper assignments. This creates a “title gap” that can kill a deal. If a major tech company wants to buy a startup, but it turns out the core platform was built by a contractor who still technically owns the code, the buyer will likely walk away.

Even if you have an assignment, the Indian Copyright Act has some strange quirks that a financial auditor would never spot. For example, if a deed of assignment doesn’t specify how long the assignment lasts, the law says it is only valid for five years. Also, if the company doesn’t actually use the rights within one year, those rights can lapse and go back to the original creator. Imagine a scenario where a company buys a software target for its proprietary algorithm. The financial audit shows the software is generating millions in revenue. But the IP due diligence finds that the assignment for that code was signed four years ago and didn’t specify a duration. In one year, the rights could legally revert to the original developer. This is a “deal-breaker” that no balance sheet would ever reveal.

Patents: Bedrock of Defensive Strategy

In sectors like pharmaceuticals and the burgeoning 6G space in India, patents are the only things that matter. India has seen a huge surge in 6G-related patents, with Indian-origin filings now overtaking foreign ones. This reflects a maturing ecosystem that is shifting from just using technology to actually creating it. For a company looking to acquire a player in these spaces, the IP due diligence must go deep into “Freedom to Operate” (FTO) analysis. This means checking if the target’s products actually infringe on someone else’s patents. You could have a target with a great patent for a drug, but if that drug requires a manufacturing process owned by a competitor, you might be blocked from the market regardless of your own patent’s validity.

Unlike copyrights, there is no “automatic” ownership of patents by an employer in India. The inventor is always the first owner. This means every single patent in a company’s portfolio must have a clear chain of written assignments from every individual inventor who worked on it. In family-run Indian businesses, it is common to find that patents are registered in the name of the patriarch or a group entity rather than the actual company being sold. A financial auditor might see the patent listed as an asset, but the IP lawyer will see that the company doesn’t actually own it.

Hidden Pitfalls in Indian Market

There are some very specific “traps” in the Indian market that can catch a buyer off guard. These aren’t just technicalities; they are real issues that can derail a billion-dollar deal. In India, any agreement that transfers IP rights has to be documented properly, and the applicable stamp duty must be paid. This duty varies by state. For example, in Delhi, it can be 6 to 7 per cent of the total deal value. If a target company has done a bunch of internal transfers or assignments without paying the stamp duty, the agreements might not be enforceable in court. A financial auditor might miss this because it’s not a “debt” on the balance sheet, but it’s a huge legal liability for the buyer.

IP rights are also territorial. A trademark registered in the U.S. doesn’t protect you in India unless you’ve filed it here too. We’ve seen cases where a buyer was interested in a target’s product in India, but the patent protection was only available in the U.S. This means that in the Indian market, the product was basically in the public domain, and anyone could copy it.

Then there is the issue of open-source software. Most modern software is built on open-source code. This is fine, but some open-source licenses (like GPL) have “copyleft” provisions. This means that if you use that code in your product, you might be legally forced to release your own proprietary code for free. Buyers in the tech space now dig deep into open-source compliance. If they find that the target’s “secret sauce” is mixed with copyleft code, they will likely walk away or demand a huge discount because the exclusivity of the product is gone.

Conclusion

We are living in an age where the “stuff” a company owns is becoming irrelevant compared to the “ideas” it owns. Financial due diligence is still a necessary hurdle, but it is no longer the defining factor of a successful deal. If you want to know if an acquisition is actually worth the price, you have to look at the IP.

The shift in India is particularly stark because of our booming tech and pharma sectors, our unique labour laws regarding copyright and our recent tax changes that have killed the “goodwill” shortcut. So, for the modern M&A professionals, the lesson is clear: if you don’t understand the IP, you don’t understand the deal. Relying on financial statements to tell you the value of a modern company is like trying to describe a movie by looking at the ticket prices. It tells you that people are paying to see it, but it tells you nothing about the plot, the actors or whether someone else actually owns the script. In 2025 and beyond, IP due diligence is the script, the actors and the entire production. Without it, you’re just sitting in a dark theatre.

References