The recent $256 million sale of 23andMe's assets to Regeneron offers valuable insights for auction professionals about the evolving landscape of intellectual property auctions. This high-profile Chapter 11 case demonstrates how intangible assets - DNA databases, customer relationships, and proprietary technology - have become the primary drivers of value in modern business liquidations.
For regional auctioneers handling commercial liquidations, this case study reveals actionable strategies that can significantly boost recovery values, even in smaller deals. We'll explore how the principles behind this headline-making intellectual property auction can be scaled down and applied to everyday business liquidations.
Note: This post is taken from a deeper-dive LinkedIn article you can read here.
The Hidden Value in Intellectual Property Auctions
In 23andMe's bankruptcy, the most valuable assets weren't laboratory equipment or office furniture - they were intangible assets that many traditional auctioneers might overlook. Regeneron's winning bid focused on customer data from over 15 million users, proprietary algorithms, brand recognition, and ongoing customer relationships.
This reflects a broader trend: intangible assets now account for roughly 90% of the market value of S&P 500 companies. The treasure lies in databases, proprietary software, customer lists, and intellectual property - not in desks or test tubes.
Recognizing Intangible Assets in Regional Liquidations
Even small businesses can have valuable intellectual property that presents auction opportunities. We've identified key steps to recognize and market these hidden assets:
Identify Intangibles Early: Beyond inventory and equipment, catalog all intangible assets including customer databases, trade names, domain names, social media accounts, patents, proprietary software, and contracts. A failed local retailer's email list and e-commerce platform might be valuable to competitors seeking instant access to customers.
Articulate the Value Proposition: Translate intangible assets into concrete benefits. Instead of simply listing "customer database," explain: "This company's mailing list includes 5,000 past customers in the region - a turnkey marketing opportunity for buyers to generate immediate sales." Put numbers on it when possible to back up valuations.
Target the Right Buyers: Market intangibles to those who value them most. Competitors or industry peers often make the best candidates for customer lists or brand assets, since they can integrate that goodwill into existing operations. A regional gym's membership list might be valuable to another fitness chain in town.
Address Legal and Privacy Matters: Customer data comes with obligations. Be prepared to explain privacy protections and transfer restrictions. In 23andMe's case, the court required buyers to adhere to existing privacy policies. Clarify these conditions during marketing to reassure bidders and avoid legal objections.
Modern Stalking-Horse Strategies for Intellectual Property Auctions
One standout feature of the 23andMe auction was its use of a stalking-horse bidder to jump-start the sale process. This initial binding bid establishes a floor price and creates competitive momentum - a strategy that works for intellectual property auctions of any size.
Key Components of Stalking-Horse Bids
Break-up Fee: The stalking-horse bidder receives compensation (typically 2-5% of their bid) if they're outbid. This incentivizes serious initial offers by reducing the risk of being a "price setter" for others.
Expense Reimbursement: Initial bidders may have due diligence costs covered if they don't win, ensuring serious participants don't feel burned after investing resources.
Timeline Certainty: Having a stalking horse locks in firm deadlines for the sale, giving all parties clarity on when resolution will occur.
Scaling Stalking-Horse Tactics for Smaller Auctions
Regional auctioneers can leverage these strategies in intellectual property auctions by:
Finding Natural Buyers: Identify competitors, suppliers, or investors who might commit to baseline offers before public auctions. For a small manufacturing company, perhaps a rival manufacturer would bid on equipment and customer contracts together.
Offering Proportional Protections: Instead of million-dollar break fees, offer modest protections scaled to deal size. A $10-15k break fee on a $500k stalking-horse bid provides reasonable incentive without deterring other bidders.
Promoting Value Signals: Market the fact that you have a binding offer in hand. This validates value and may flush out fence-sitting buyers who were undervaluing assets before seeing someone else put down real money.
Translating Corporate Strategies to Regional Intellectual Property Auctions
High-profile deals offer great ideas, but regional auctioneers must translate rather than copy big-league strategies. Here are key considerations for smaller intellectual property auctions:
Essential Do's and Don'ts
Do inventory all asset categories: Make comprehensive lists of tangible and intangible assets. Use experts to appraise unusual intellectual property when needed. You can't sell what you haven't identified.
Do verify ownership and transferability: Ensure the business actually owns what it's selling. That "proprietary" software might be under a non-transferable license, or customer data might legally belong to a franchise parent.
Do highlight intangibles in marketing: When advertising auctions, explicitly mention valuable intellectual property: "Includes rights to XYZ trademark and 5,000-client database." Use plain language - not everyone knows what "IP assets" means, but they understand "brand name and customer list."
Don't assume big-league tactics automatically work: Be selective about which strategies to adopt. A $10k break fee might deter bidders in a $200k sale, even though it worked in a Fortune 500 case.
Don't neglect due diligence: Verify that equipment works and disclose known defects. Small businesses often have intertwined personal and business assets - don't accidentally auction the owner's personal property.
Don't violate privacy or intellectual property rights: Review company privacy policies and contracts carefully. If a policy promises "we will not sell your personal information," involve legal counsel to determine if bankruptcy exceptions apply.
The Growing Opportunity in Intellectual Property Auctions
The 23andMe case reinforces that value in the modern economy is increasingly digital and relational rather than physical. For auctioneers, this means becoming as skilled at appraising and selling intellectual property as traditional assets.
Advanced techniques like stalking-horse bids can be adapted to even the smallest bankruptcy or liquidation to avoid leaving money on the table. A local bakery's secret recipes and brand identity, a small tech firm's software code, or a contractor's client list may not sit on shelves, but they can ignite competitive bidding when properly showcased.
We believe regional auctioneers who master intellectual property auctions will deliver significantly better outcomes for debtors and creditors alike. The key is asking: "What does this business know, who does it reach, or what can it do - that someone else would pay for?" Then make that your selling point.
Ready to maximize value in your next liquidation? Contact AuctionMethod today to discuss how our auction software can help you conduct professional online sales of intellectual property and other complex assets. Our platform provides the tools you need to identify, market, and sell intangible assets effectively - turning hidden value into real results for your clients.
