Business Transaction Due Diligence Intangible Assets

April 21st, 2017. Published under Due Diligence and Risk Assessments, Intangible asset risk tolerances and thresholds.. No Comments.

Michael D. Moberly April 21, 2017 ‘A intangible asset business blog where attention span really matters’.

Transaction due diligence is, most always warranted, particularly in today’s ‘always on’, aggressively competitive, predatory, and often ‘winner-take all’ global business 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 only (intellectual property) lens, opportunities to recognize and exploit the value of embedded IA’s and (proprietary) competitive advantages can be, and frequently are, under-estimated, overlooked, dismissed, or considered redundant, or irrelevant to the presumptive deterrent effects associated with conventional IP enforcements, i.e., a registered patent, copyright, trademark, or designating specific knowledge and/or knowhow (intellectual, structural, relationship capital) as a trade secret.

Today, business transaction 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’.

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.

Again, conventional ‘check the box’ conceived templates of due diligence are unsatisfactory because they are seldom inclusive, comprehensive, or sufficiently forward looking to capture, unravel, and monitor the (risk and value) relevant to the IA’s in play and are often constrained by unwarranted anxieties and requests for speed. Too, it’s worth noting again, it is a globally universal economic fact – business reality today that 80+% of both a company’s and a targets’ value and sources of revenue lie in – emerge directly from IA’s. This makes it all-the-more essential that any business transaction due diligence fully address IA’s.

The primary objective for any IA due diligence activity is unraveling the circumstances pertinent to the IA’s in play, which, in turn, serve as a basis for providing superior knowledge about a target and the transaction being undertaken in a manner that contributes to decision makers’ determination about whether the targets’ IA’s can sustain the terms and objectives of the proposed deal.

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’.

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