IPv4 Address Transfer in Cross-Border M&A
by IPv4.Global Staff
IPv4 addresses are numerical identifiers, organized and used in a specific way to make network communication among devices possible. They are publicly registered, identifying their exclusive user. The right to use these identifiers can be bought and sold. It is this right-to-use that can be considered an asset. Since there is a finite number of them and a sizable demand worldwide, IPv4 addresses have significant value. So, when addresses change hands in a merger or acquisition financial leaders should understand the basics of their valuation and transfer.
International mergers or acquisitions add yet another layer of complexity to the issue. There are five Regional Internet Registries (RIRs) worldwide that manage the billions of addresses and nearly countless users of them. So, cross-border M&A involving IPv4 addresses is typically complex. Adding to this complexity are the financial implications of these transactions, legal and regulatory compliance requirements, and other related nuances.
Below, we’ll cover essential considerations for successfully completing IPv4 transfers in M&A.
Understanding the Financial Implications of IPv4 Transfers
In most M&A transactions, asset valuation typically centers on tangible assets, whose value is relatively easy to determine and track on balance sheets. For instance, appraising assets like land, equipment, or buildings during M&A can reveal their value in a specific transaction.
However, appraisals of intangible assets like IPv4 blocks tend to be more challenging because due diligence is necessary to determine their market value. Establishing this value requires some estimate of likely monetization through a potential sale or in the form of the asset’s valuation in a leasing environment. Getting a sense of these valuations is readily accessible. The largest and most transparent IPv4 marketplace in the world displays current, anonymous transaction histories online. They can be examined in the IPv4.Global marketplace and in the website’s prior sales summary reporting.
Without an up-to-date IPv4 valuation, CFOs will likely be unaware of the value of their organizations’ IPv4 addresses, which could impact the accuracy of financial statements and long-term asset valuation. For instance, between 2019 and 2022, the value of an IPv4 address rose from $20 to $60, meaning an organization holding hundreds of thousands of these addresses gained significant value during this period.
The Process of IPv4 Asset Transfer in M&A
Here is a break down of the main processes of IPv4 transfers in M&A:
Conducting Due Diligence: Financial and Technical Audit of IPv4 Addresses
IPv4 due diligence is critical to identifying risks related to IP address management, which typically relate to security. For instance, a poorly monitored network of IPv4 addresses presents risks upon acquisition if insecure devices remain connected to the network and are undetected even after the acquisition. Cybercriminals find these networks easy targets because there are lower chances of being detected while breaking into them. IP address audit tools like ReView are a boon for taking accurate inventory of your IPv4 holdings and can help identify security risks before a transfer is conducted.
It’s also critical to determine the current and historical financial value of the IPv4 addresses, which typically depends on block size relative to market dynamics. (The two sources sited above are ideal for this purpose.) For instance, between 2015 and 2020, large blocks were priced lower than smaller ones but sold at higher prices after 2021, likely because of changes in supply and demand. This historical information can also help track any discrepancies in the pricing of IPv4 addresses traded during a specific period.
Negotiating the Deal: Pricing Strategies and Valuation of IPv4 Addresses
Pricing and valuation of IPv4 addresses hinges on multiple factors that may or may not be under an organization’s control. For example, market dynamics extrinsically determine how much the rights to an IPv4 address block will cost. To some extent, block sizes can also influence the pricing of IPv4, depending on the supply and demand shifts of a given block size of addresses.
On the other hand, the reputation of any IPv4 addresses depends on their prior use and the diligence with which that use has been protected by their owners. IP addresses that rank low reputationally are less likely to have significant value since they are considered a risk to any organization’s network security, among other considerations.
Understanding how these factors influence IPv4 pricing will help guide deal negotiation to maximize the value of these assets during evaluations leading up to a merger or acquisition and in establishing financial worth following one.
Closing the Deal: Ensuring Compliance and Seamless Transfer of Addresses
IPv4 regulatory compliance is often less complex for intra-RIR transfers between companies under the same RIR region. However, inter-RIR transfers, which involve transfers across borders, typically have more requirements for buyers and sellers.
For instance, the American Registry for Internet Numbers (ARIN) requires organizations to demonstrate their acquisition of the company or the underlying network IPv4 addresses via documents such as:
- An asset purchase agreement and bill of sale for the purchase of the company or network
- A finalized merger or amalgamation agreement filed with a government entity
- A finalized court order indicating proof of the acquisition
- SEC or other public filings documenting transfer of assets
- Documentation of an organization’s name change following acquisition
Overcoming Financial and Regulatory Challenges
Alongside compliance with legal and regulatory requirements, executives are also expected to justify the need for every IPv4 investment. For a CFO, this means identifying the financial risks of acquiring these assets as part of an M&A and minimizing any unnecessary fees, penalties, or unforeseen expenses during and after the M&A.
For example, in ARIN, companies looking to transfer their IPv4 addresses to another ARIN-based organization are required to pay a $500.00 Resource Transfer Fee per transaction. Organizations receiving IPv4 assets will be charged a Recipient Transfer Processing Fee ranging from $187.50 to $192,000.00, depending on the aggregate block size of the transfer. Overall, ARIN’s fee schedule is a complex mix of tiered membership and service specific fees.
So, there’s an astronomical difference between owning one small /24 block and those larger than a /6 (over 67MM addresses). Without prior knowledge or due diligence, a CFO may be unprepared for the significant costs of holding and/or transferring these assets.
One way to overcome such challenges is to partner with an IPv4 broker who can advise on the financial repercussions of owning certain IP address blocks and whether they will remain valuable in the long term.
Post-Acquisition IPv4 Integration and Financial Management
Once the IPv4 addresses are acquired, CFOs must also plan for the implications of these acquisitions. Thinking long-term, any company that plans to rapidly expand its networks will benefit from holding these IPv4 blocks rather than buying them later on an as-needed basis.
However, if there isn’t an immediate need for deploying these IP addresses, a company could lease them to organizations that currently need network space. In either scenario, there’s a significant demand for IPv4 space because it’s been exhausted globally, so a CFO can mitigate many of the risks of owning these assets post-M&A.
Maximizing ROI on IPv4 Transfers
IPv4 addresses will remain valuable in any market where companies and enterprises desire network expansion. Strategically speaking, IPv4 address rights can be treated like any other intangible or tangible asset whose value changes with market conditions. For instance, a company can choose to hold them after they have been acquired and sell them later, or sell immediately to offset the corporate acquisition cost. Prices may rise over time, but there’s risk that they could fall, or not keep pace with inflation or a company’s internal rate of return. With the help of a broker, a company holding stockpiles of these IP addresses can sell them at competitive prices.
Depending on the region, holding IPv4 addresses also allows CFOs to implement various leasing strategies, especially if many of these addresses are unused. For instance, a CFO could plan to lease small IPv4 blocks in the short term, adjusting for lease pricing as market demand shifts and generating substantial revenue without selling these addresses upfront.
CFO’s Roadmap to Success in IPv4 Asset Integration
A relative scarcity of IPv4 addresses in the marketplace isn’t changing soon, meaning businesses can likely acquire these addresses for their long-term needs without undue risk of their value evaporating. Forward-thinking CFOs realize that IPv4 addresses aren’t only tools for network expansion but have substantial monetary value when leveraged strategically.
CFOs and their executive partners should identify any conflicts that may impact the ownership of IPv4 addresses. Since these assets are volatile, estimating current and future value ensures pricing is trackable relative to the assets’ value at the time of acquisition. Thorough integration of IPv4 addresses also helps increase the accuracy of disclosures to all stakeholders involved in the acquisition.