A costly and often irreversible challenge companies unsuspectingly experience when engaged in a transaction, i.e., buy, transfer, merger, acquisition, etc., is, learning the most desirable intangible assets have been infringed, misappropriated, and/or the assets’ value, source of revenue, and/or competitiveness have been undermined and/or erosion has commenced. Under these circumstances, should either occur un-abated, un-mitigated, and un-monitored, it will, at minimum, place the transactions’ projected – desired outcome at substantial risk!
And, respecting the economic fact that 80+% of most company’s value, sources of revenue, wealth creation, competitiveness, and sustainability today, lie in – emerge directly from intangible assets, it’s important for transaction managers and decision makers to concede intangible assets will inevitably be in play. With that, essential fixtures to each transaction under considered or engaged, is to put-in-place (asset) safeguards to preserve and monitor the contributory role and value of the intangible assets in play throughout the life-value cycle of the transaction, i.e., pre – post transaction.
Transaction (intangible asset) due diligence is always warranted, particularly in today’s ‘always on’, aggressively competitive, predatorial, and ‘winner-take all’ global business (transaction) environment in which asset loss, erosion, and undermining can occur at ‘keystroke speed’. However, when transaction due diligence is framed – conducted through a conventional, IP (intellectual property) only lens, opportunities to recognize risk can be, and frequently is, under-estimated, overlooked, dismissed, or considered redundant, or irrelevant to the presumptive deterrent effects associated with traditional IP enforcements, i.e., a registered patent, copyright, trademark, or trade secret.
Today, business transaction (intangible asset) due diligence must be far more than a cursory review of (legal, accounting) documents and the status of IP, i.e., P&L’s, financial statements, and/or balance sheets. Through my lens, these documents often constitute little more than ‘snap-shots-in time’ as incomplete glimpses into a company’s financial – competitive advantage circumstance.
Too, its unlikely such conventional ‘snap-shots’ will surface-reveal the contributory role, value, sources of revenue, and competitive advantages produced – generated by IA’s, which are embedded and interwoven in various levels of a company’s intellectual, relationship, competitive, and structural capital. More specifically, in conventionally practiced-conducted business transaction due diligence, these, and other characteristics and attributes of IA’s, are unlikely to be recognized as having actual dollar value and competitive advantages, or otherwise have a bearing on a transactions’ outcome, that is, for the IA ‘operationally un-familiar’.
Again, be it an acquisition, merger, alliance, partnership, buy-sell transaction, or new market entry initiative, each circumstance can quickly become mired in impediments if-when the IA’s in play are overlooked or not effectively unraveled relative to their origins, ownership, control, and the manner-in-which they are utilized and exploited. This-is-why, I recommend transaction due diligence be IA-centric and conducted in pre, and post (transaction) contexts.
Also, conventionally conceived due diligence templates, ala ‘check the box’ are generally unsatisfactory because they are seldom inclusive, sufficiently comprehensive, or forward looking to capture, unravel, and monitor the (risk and value) relevant to the IA’s in play. Too, such templates are often constrained by unwarranted anxieties and requests for speed.
A primary requisite-objective to any (IA) due diligence activity, is unraveling the circumstances pertinent to the IA’s in play. Doing so effectively, provides superior knowledge – insights about a target and the transaction being undertaken. It also contributes to decision makers’ determination about whether the targets’ IA’s can sustain the terms and objectives of the proposed deal.
Having in-house capability to monitor intangible asset risks, as close to real time as possible, because they are often precursors to fluctuations in asset value, is, in my judgment, a critical requisite for taking prompt and decisive action to sustain and/or re-gain control, use, and ownership of intangible assets and proprietary competitive advantages. Any delay in discovering and assessing the strength and/or eminence of such risks and containing-mitigating their adverse effects by not having experienced guidance in place to distinguish what-which action to take, will routinely complicate and even weaken one’s (future) position for achieving a favorable economic outcome to any transaction in which intangible assets are in play.
Underlying most risk to intangible assets, especially infringement, is unethical or illegal conduct of employees and/or insiders-participants to an impending transaction, i.e., in the form of misplaced trust, operational-procedural oversights, aggressive competitor intelligence, and/or economic – competitive advantage intelligence-espionage.
This is another reason why conducting business-wide intangible asset and competitive advantage assessments are useful, and increasingly necessary, i.e., if evidence of significant risk or probability of infringement are found, the company is better positioned to:
• rapidly recognize and prioritize their options relative to trying to (re-)establish ownership and/or (re-)obtain control and use of their idea-innovation.
• to try to stop and/or mitigate any further economic hemorrhaging of the intellectual capital and competitive advantages that may have already started.
• have a viable exit strategy in place to extricate the company and its IP-related assets, intangibles, and proprietary competitive advantages.
Specifically, IA due diligence should describe, for decision makers, the status, fragility, stability, and defensibility of about-to-be-purchased and/or exchanged IA’s, including IP, and other forms of proprietary competitive advantages, by revealing, among other things, any evidence of:
• over confident – embellished representations.
• purposeful or premature disclosures, or open source leakage that leads to assets being compromised.
• internal/external entanglements involving the IA’s in play.
• probing by and/or adverse impact from business intelligence, competitive advantage adversaries, or economic espionage.
A thorough pre-post IA-specific due diligence conveys a strong and important message to actual or prospective (transaction) targets, by zeroing in on their centers of value, competitiveness, revenue generation capacity, brand, and sustainability, etc., while minimizing non-essential – (irrelevant) information drawn from conventional and gratuitous ‘check-the-box’ actions which seldom provide the level of specificity that’s essential for today for IA intensive and dependent businesses and transactions in which IA monitoring is critical to lucrative, competitive, and sustainable outcomes. That’s because IA value and competitive advantage fluctuation, erosion, and/or undermining can commence at ‘keystroke speed’.
Michael D. Moberly July 28, 2017 email@example.com A business intangible asset blog where attention span really matters.