Michael D. Moberly June 8, 2017 ‘A business intangible asset blog which attention span is necessary’.
There have been countless articles, books, and essays written regarding every conceivable aspect to M&A’s (mergers and acquisitions). Strangely, I find most, at least through my lens, overlook, or omit the role and contribution of intangible assets to the outcome. After all, it is an economic fact – business operation reality today, as it has been for the past 20+/- years, that 80+% of most company’s value, sources of revenue, future wealth creation, and competitiveness lie in – emerge directly from IA’s (intangible assets).
So, would it not be prudent for parties to M&A’s to secure representation from sources well versed in IA matters, especially due diligence and sustaining control, use, ownership, and mitigating risks? Because, after all, it’s the IA’s which are often the catalyst and incentive for M&A’s and certainly critical to the outcome.
Starting in the mid-to-late 1990’s, I had the good fortune, and perhaps good sense, to read-study early products (chapters) of a multi-year project undertaken by The Brookings Institution titled ‘Understanding Intangible Sources of Value’. The principle investigators-authors of the project, several of whom I engaged at the time in discussion for clarity and insight, were a strong troupe of forward looking-thinking practitioners.
IA’s however, prompt debate, less today about their existence and contributions and more about how to value and report IA’s. In other words, conventional financial statements and balance sheets largely exclude or, at the very least, minimize the contributory role and value of IA’s. Thus, most portraits of a company’s financial wealth, health, potential, and competitive standing are, in my judgment, incomplete.
In the M&A arena, it’s important, more so today than perhaps ever before, to recognize that merely because an M&A has been proposed, appears promising, and has progressed to a conventional due diligence stage, does not constitute assurance that any of the projected-anticipated value, synergies, efficiencies, scalability, and competitive advantages are fully capturable, will materialize, or be sustainable. Therefore, IA specific (pre-post transaction) due diligence is a necessary component in deal consummation.
To reasonably assure projections and outcomes will materialize as intended, the due diligence must be sophisticated to recognize the IA’s in play, which includes identifying, unraveling, and assessing asset fragility, vulnerability, sustainability, and transferability in both pre, and post monitoring contexts. Transaction negotiations today are aggressive, competitive, predatorial, and generally manifest as winner-take-all outcomes. Under these circumstances, dismissing and/or relegating the posture and standing of key intangible assets to mere hope and trust is fiduciarily suspect at best.
I have had the privilege to engage many business strategists and decision makers in private conversation. I have no recollection of any disputing my advocacy for IA due diligence for transactions. Assuming these conversations are representative, it would seem prudent that IA’s would be duly considered in every business transaction process.
This post, in part, was inspired by Generational Equity piece titled ‘Precision Sourcing’.