Archive for 'Business Transactions'
Transaction Analysis For Intangible Assets!
December 21st, 2012. Published under Business Transactions, Due Diligence and Risk Assessments, Intangible asset assessments/audits.. No Comments.
Michael D. Moberly December 21, 2012
As stated here on numerous prior occasions, it’s absolutely essential for business decision makers to recognize that in a vast majority of transactions they either initiate or otherwise become engaged, correctly identifying and assessing intangible assets plays an increasingly significant role in achieving a desired, presumably profitable and sustainable, outcome!
The reason of course, is that steadily rising percentages, at least 65+% of most transactions’ value and potential resides exclusively in the effective stewardship, oversight, and management of the intangible assets in play, and, as noted above, critical to achieving a favorable transaction outcome. So, if a transaction management team overlooks or dismisses the intangible assets, it’s tantamount to excluding how and where deal/transaction value is created, revenue is generated, and further strategic planning will be executed.
This makes it all-the-more-important, and, according to many, rising to a level of fiduciary responsibility insofar as transaction management teams’ incorporating intangible assets in their task of strategic oversight. When executed effectively, a transactions’ intangible assets will be collectively addressed in due diligence, inventory, audit, and valuation contexts. On the otherhand, if transaction management teams are deaf to the intangibles underlying most any deal, i.e. by doing neither, it’s quite fair to say it’s time to either change transaction management teams or engage them in relevant training to elevate their operational familiarity with intangible assets, i.e., their ability to identify, unravel, make quantitative-qualitative judgments regarding their status, stability, fragility, contributory value cycle, and overall sustainability.
As readers know, there is an abundance of research that consistently paints a very convincing picture that if and/or when a merger, acquisition, strategic alliance, or other type of transaction ‘goes south’, evidence of impending problems and challenges will surface quite early and will very likely be determined to be rooted in mishandling or disregard for the relevance or contributory value of one or more intangible assets necessary for achieving sustained transaction success.
One technique to mitigate or even remedy the probability that the latter will occur is for decision makers to require (receive) a ‘heads up’ from their transaction management team in the form of what I broadly describe as a ‘before transaction consumation asset impact analysis’. As the phrase implies, this specialized analysis should bring greater (business) clarity, i.e., a more definitive picture of the stability and strategic contributory value of key assets, particularly should certain risk(s), reputation and others, materialize that carry a high probability for adversely affecting one or more of the intangible assets integral to achieving a favorable transaction outcome. The most usable analysis (report) will address
- the inter-relatedness of intangible assets’ contributory value and associated risks and threats as well as key assets identified as being impaired in some manner, or are found to be already misappropriated, infringed, and/or counterfeited.
- the probability that particular risks/threats will materialize to adversely affect the projected economics, competitive advantages, and/or synergies of a transaction
- strategies for mitigating and containing certain risks/threats relative to the resiliency and sustainability of the transactions’ key intangible assets.
The obvious rationale for incorporating a ‘before transaction consumation asset impact analysis’ is for decision makers to be apprised of circumstances and scenarios that should be revealed which can (may) influence decisions and outcomes.
I am a strong advocate of ‘before transaction consumation asset impact analysis’ because I believe the three, most challenging intangible assets to sustain and preserve their contributory value (pre/post transaction) are, (a.) intellectual, (b.) relationship, and (c.) structural capital because they are individually and collectively highly mobile and attitudinally based.
Too, a ‘before transaction consumation asset impact analysis’ can reveal other cautionary circumstances/scenarios while retaining the option to proceed with a (a.) plan for risk mitigation, or (b.) re-negotiate a deals’ terms in light of the risk(s) and/or asset impairment(s) that have been identified.
But, the objective remains the same, that is to facilitate a more secure and profitable transaction going forward, not impede it!
Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance. And, I always welcome your inquiry at 314-440-3593.
Unnecessary Transaction Expediency = Hemorrhaging of Intangible Assets
December 4th, 2012. Published under Business Transactions, Mergers and Acquisitions. No Comments.
Michael D. Moberly December 4, 2012
First, when structuring and executing any deal and/or business transaction today, particularly the due diligence component, it’s essential to recognize that IP and other forms of intangible assets are going to play increasingly significant roles insofar as affecting outcomes.
Second, when either, i.e., deal structuring, due diligence, and execution, etc., is conducted in a gratuitously hurried fashion as if one really believes the Christmas season retailer hype of ‘buy now, only two at this price left’, then it’s quite likely the opportunity (vulnerability) and probability that asset hemorrhaging will occur, possibly substantial, rises, particularly in today’s increasingly aggressive, predatorial, and winner-take-all global transaction environment.
Having been actively engaged in information – intangible asset protection and risk – threat management for 20+ years, my counsel is straightforward. Decision makers responsible for deal structuring, i.e., c-suites and boards have fiduciary responsibilities that include sustaining control, use, ownership, and monitoring value and materiality of the about-to-be-purchased (acquired) intangible assets.
In my view, these responsibilities must and should commence at the point in which the deal/transaction is being initially structured and due diligence planned. That’s because today, 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from intangible assets!
Thus recognizing and making preparations to mitigate the vulnerability and probability there will be financial – competitive advantage hemorrhaging of any of the about-to-be-purchased (intangible) assets before the ink dries on a transaction agreement, is an essential factor to achieving the desired (successful, profitable, sustainable) outcome.
The kind of (intangible) asset hemorrhaging I am referring to broadly consists of theft, misappropriation, and/or infringement of proprietary assets, e.g., intellectual, structural, relationship capital and operational knowhow, anyone of which can undermine assets’ contributory value, competitive advantages, market space, or reputation, that likely prompted the transactions’ initial conceptualization.
Intangible asset hemorrhaging (in deals and transactions) is frequently facilitated, in my experience, when two frequently held attitudes held by decision makers converge, i.e.,
- unnecessarily high or unjustified sense of urgency attached to deal execution. (Urgency and speed often mutate to become a dominant driver of a transaction which in turn can constrict – impede a thorough due diligence, especially with respect to unraveling the origins, stability, sustainability, value, and ‘mergability’ of the intangible assets in play.)
- assumption that deals-transactions can be consummated and revenue streams commence before the (intangible) assets in play (in the form of intellectual, relationship, and structural capital and proprietary operational know how) will fall prey to theft, misappropriation, or simply walk out the front door with departing employees.
Again, because overwhelmingly rising percentages of company value and revenue evolve from intangible assets, any short-cuts or ‘rush job’ due diligence routinely leads to grief, frustration, and disappointing (asset) performance. That’s why it’s so essential for asset buyers (and that, in my view, is precisely what’s occurring in business transactions, i.e., the purchase of bundles of intangible assets) to ‘get out front’ of a transaction by acknowledging and preventing the aforementioned attitudes from adversely influencing how a transaction will be structured, due diligence conducted, and ultimately executed.
Readers who remain unconvinced are encouraged to think about transactions in this context. If a company’s decision makers and/or legal counsel convey dismissiveness about the attitudes described above and their potentially adverse effect on transaction outcomes, they presumably would have to know precisely, the most opportune time…
- when acts of (intangible asset) misappropriation, theft, infringement, misappropriation will occur, and,
- required for an adversary to integrate the misappropriated – stolen (intangible) assets into a competitor’s or economic/competitive advantage adversary’s products and/or services as enhancements, efficiencies, and competitive advantages.
In other words, decision makers would need to possess psychic powers in their prognostications, which I am skeptical and certainly reluctant to award.
Exacerbating these increasingly probable events even more, is the rarity that asset buyer’s due diligence plan will include asset value and competitive advantage monitoring components to alert, stop, or stabilize the inevitable asset hemorrhaging or recover compromised assets before substantial and many times irrevocable asset value loss, harm, and/or reputation risk ensues.
The fact is, the lost and/or compromised intangible assets constitute a ‘head start’ of sorts for those engaged in their illicit acquisition and use. While actual asset losses in these circumstances, i.e., dollar value, remains largely subjective, it’s pragmatic, in my view, to try to measure it less in dollar values, and more in in terms of the speed which such adverse acts can and do frequently occur, i.e., hours and days, not weeks, months, or quarters. So, is a well-constructed and thorough due diligence plan warranted, specifically one that fully addresses intangible assets,you bet!
Unfortunately, there are numerous actual and would-be (intangible) asset buyers that I characterize as being engaged in ‘permissive neglect’ with respect to identifying, monitoring, and safeguarding, about-to-be purchased intangible assets, by erroneously assuming…
- any economic and/or competitive advantages an economic or competitive advantage adversary or employee of the about-to-be-purchased or merged firm may glean from the (intangible) assets they compromise or illegally acquire will be short-lived and/or outpaced by the rapidity of changes in consumer and market demands which only the legitimate (asset) originator will be able to deliver, and,
- intangible assets are (readily) renewable resources.
Respecting the narrowness of (profit) margins today, in any business transaction, management teams, legal counsel, c-suites, and boards alike, would be prudent to re-consider both assumptions!
Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to the circumstance. And, I always welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com
Please watch for Mike’s book ‘Intangible Assets: Security Managers Roadmap’ to be published soon!
Intangible Asset Specialists: The New Business Transaction Analyst!
June 27th, 2012. Published under Business Transactions, Due Diligence and Risk Assessments, Intangible asset protection. No Comments.
Michael D. Moberly June 27, 2012
Context…today, 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth and sustainability directly evolve from intangible assets usually, intellectual property. One must, and I might add, correctly conclude then, that proportionately, similarly increasing percentages of (global) business transactions will involve either the buying, selling, or trading of intangible assets and IP.
As intangible assets become more recognizable and play more integral roles in business transactions, their value and exposure (vulnerability) elevates. So now, it’s not merely prudent, but rapidly being quite correctly characterized as a fiduciary responsibility for transaction management teams to:
- include intangible asset specialists and strategists skilled in the art and science of conducting due diligence on intangible assets that are increasingl in play and/or part of a deal.
- be alert to an ever increasing and sophisticated array of risks and threats when materialized, can rapidly undermine and/or erode asset value, competitive advantages, and projected synergies and efficiencies, or, worst case, cause certain intangible asset values ‘to go to zero’.
Perhaps it’s worth repeating, it’s no longer merely prudent, rather, it’s essential, if not a fiduciary responsibility for transaction initiators to recognize that in most, if not all deals, intangible assets, e.g., IP, competitive advantages, proprietary information and know how in the form of intellectual, structural, and relationship capital are critical to transaction value and achieving a positive and sustainable outcome. It is in this context then, that I urge transaction management teams to include, at the outset, a high degree of specialization and expertise, particularly with respect to intangible assets, i.e., professionals who…
- are additionally skilled in identifying, unraveling, and safeguarding those intangible assets identified as being integral to transaction success.
- can identify transaction risks, which, if materialized, can stifle a deals’ momentum and/or undermine important assets’ projected value, competitive advantages, and synergies.
- can articulate relevant-favorable (off-setting, mitigating) modifications to the terms of a transaction when risks are revealed that jeopardize asset value projected synergies, expected efficiencies, etc.
- can readily put in place effective, yet unobtrusive measures that compliment re-negotiated transaction-contractual codicils to retain control, use, ownership, and monitor value and materiality of key assets in both pre and post transaction contexts.
One could make an effective argument then that intangible asset specialists and strategists today are comparable to industry sector (Wall Street) analysts who assess and monitor relevant-key variables, e.g., trends, events, cycles, and risks to intellectual and structural capital, innovation pipelines, and the full range of intangibles relative to their near – long term stability, sustainability, fragility, and volatility.
The premise here, of course, is that intangible asset specialists and strategists should be early and consistent invitee’s to the ‘transaction management and decision table’. And, once ‘at the table’, their assessments and recommendations should be given due attention relative their contributions to facilitating more secure, stable, and profitable transactions as they were initially envisioned.
While visiting my blog, you are respectfully encouraged to browse other topics/subjects of interest. Should you find particular topics of interest or relevant to your circumstance, I would welcome your inquiry or comment at 314-440-3593 or m.moberly@kpstrat.com
China’s IP Transition and Explosive Growth In Innovation…How Much Of It Has Really Been Indigenous…?
May 16th, 2012. Published under Analysis and commentary, Business Transactions, Economic Espionage, Intellectual Property Rights. 1 Comment.
Michael D. Moberly May 16, 2012
I recently read a National Bureau of Asian Research report titled, ‘China’s IP Transition: Rethinking Intellectual Property Rights in a Rising China’ and found it to be an insightful strategic window into China’s national intellectual property (innovation agenda) policy.
The reports’ executive summary and main argument reads as follows…
China’s drive to promote indigenous innovation has given IP its creation, utilization, management, and protection a prominent position in the nation’s policy agenda.
In conjunction with its ambitious policies to support indigenous innovation, China launched a major IP strategy in 2008 to support the creation, utilization, management, and protection of IP.
While I do not wish to dispute the thoroughness of the research which the reports’ authors obviously conducted and articulated so well, I do find the word indigenous disconcerting in the context of applying it as a broad descriptor of how China has achieved and intends to sustain its innovation strategy – policy agenda.
I was in China (Shanghai) in 2008 when that policy ‘went public’. It was the lead story on (English language) CCTV for several days with extended segments devoted to showcasing various, presumably government sponsored, gatherings to convey awareness for this ‘transition to intellectual property’. Most of the events appeared to be held in Beijing. Interesting to me, in several of the CCTV stories, large scale education initiatives about intellectual property were being planned.
As most anyone knows who has visited China in this decade, one does not have to walk far in a city to see evidence of entrepreneurism and entrepreneurial thinking which could understandably be characterized as – assumed to be indigenous. However, my work, research, and writing on information asset protection and economic espionage issues for 25+ years influences me to suggest that the term predatorial is also a relevant and objective descriptor of – contributor to China’s innovation policy agenda.
It is not my intent that the term predatorial, as I have chosen to apply it here, be interpreted as anti-China! Rather, I am merely suggesting the term predatorial should also be applied because of its indigenously embedded nature over a 3000 – 5000 year span of developing a (business) culture. At minimum, the word predatorial serves as, at least, a partial explanation for China’s phenomenal and rapid business – economic – innovation growth which some western researchers – writers describe as the world’s largest and most rapid transfer of wealth.
After all, we do live and work in an increasingly knowledge (intangible) asset based global economy wherein 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, wealth creation, and sustainability evolve directly from intangible assets, of which IP is just one.
I assume ‘indigenous innovation’ is a phrase Chinese policy makers carefully selected and cultivate. But, I believe the term predatorial used to describe how countries supplant – achieve rapid growth in innovation is applicable to numerous global actors, not just China.
China, in my view, is now immersed in what I respectfully call the ‘third quarter of a generation that recognizes]/ private property, let alone intellectual property’. But, in China, as in numerous other countries with communist – socialist legacies, there is virtually no intellectual property legacy to follow. And, China, like many other countries, has countless ‘legacy free players’, a phrase I first saw applied in Thomas Friedman’s books. While I am certainly not positioning myself to be an arbiter of Friedman’s work, I have consistently used this phrase in a context of describing various countries’ and actors who have yet to fully embrace and consistently practice what I refer to as an ‘intellectual property rights protection and respect ethic’.
China is no doubt, moving in the right direction, with respect to intellectual property rights. But, it has a ways to go yet for me to broadly use the term indigenous to describe the paths and strategies they have taken to achieve the intent and spirit of the language found in their national innovation agenda.
I encourage all those interested to read the report and draw their own conclusions at…
Intangible Asset Transactions: What Negotiators Need To Know
April 4th, 2012. Published under Business Transactions, Due Diligence and Risk Assessments, Managing intangible assets. No Comments.
Michael D. Moberly April 4, 2012
In most every business transaction today, valuable and competitive advantage driving intangible assets, such as IP and proprietary know how, etc., will be in play. This makes it all-the-more essential that prospective buyers – recipients of those assets, i.e., those assuming fiduciary responsibility for the assets’ stewardship, oversight, management, and use, recognize the risks and challenges associated with achieving a favorable and uncontested transaction outcome.
Anecdotal experiences from victim companies coupled with numerous and prominent studies collectively find a significant percentage of (intangible) asset risks and challenges emanate from a global culture and industry that’s increasingly dependent on and engaged in information (intangible) asset theft, infringement, and misappropriation. Today, it’s quite proper for management and/or transaction management teams to demonstrate prudence by acknowledging and trying to prevent, or at least mitigate, such risks, particularly during negotiations, and certainly before finalizing any business transaction in which intangibles are in play and ultimately part of the transaction.
Seldom is it in the (reputational) interest of victim companies to go public with their inability to safeguard their most valuable assets unless so mandated by law. Consequently the value of intangible asset losses attributed to theft, infringement, misappropriation, counterfeiting, and/or product piracy, etc., still largely remain well intentioned estimates. That’s why it’s absolutely essential for transaction management, due diligence, and negotiation teams alert asset buyers – prospective asset recipients before finalizing a deal, that the deal’s projected value and benefits, particularly those evolving from intangibles, are highly dependent on conducting a thorough and effective due diligence. The level of due diligence I am referring to must, at minimum include a comprehensive assessment of the (intangible) assets’ status, i.e., stability, defensibility, and value in both pre and post transaction contexts.
Also, if the transaction is global in scope, the transaction management, due diligence, and negotiation teams need to fully factor into their respective roles, the reality that in numerous countries (e.g., USTR, Section 301 countries particularly) substantial percentages of their GDP, sources of employment, personal income, and manufacturing base are strongly linked to perpetuating the supply of products stolen, infringed, misappropriate, and/or pirated from their rightful owners.
It’s quite correct then for prospective buyers of transacted products and intangible assets to conclude that these adverse – illegal acts have moved well beyond the realm of merely being annoying probabilities of experiencing minimal (intangible asset) losses which companies have grown accustomed to be part of any business transaction, to becoming extraordinarily costly and potentially lethal inevitabilities if left unchecked or un-considered.
To further this point, prudent transaction negotiators must recognize there are few, and in many instances, no impediments for existing, would-be, or future (asset) infringers, thieves,, counterfeiters, and product pirates to stop engaging in such acts. In large part, that’s because…
- start-up costs are minimal for infringers and their manufacturing counterparts
- such illegal acts can be executed with increasing anonymity
- cyber-attacks are playing more consistent roles in the theft of intangible (IP) assets
- deterrents’, legal or enforcement, are generally lax and inconsistent which permits the potential for long periods of quick and substantial profiteering
- the extraordinary speed in which infringement, counterfeiting, and product piracy can materialize and adversely affect a company
The following are important questions intended to influence thoroughness and prudence when engaging in (negotiating) transactions in which intangible assets are integral components, i.e., what is the…
- company’s loss tolerance threshold or ‘tipping point’ insofar as economic, competitive advantage, market share, reputation, goodwill, consumer confidence, and/or project momentum stifling, etc…?
- probability that such losses and/or compromises when – if the occur, will be irreversible and permanent,,.?
- value of the victim company’s competitive advantages and reputation losses…?
- does the victim company have a recovery and/or remediation plan in place, how rapidly can it be implemented, how much will it cost to execute, and what’s the probability a favorable outcome will be achieved…?
- degree of global universality of the company’s products and/or services, and are there any (potential) dual-use components or applications embedded in those assets…?
- cultural (business, legal, government) receptivity to (climate for) infringement, counterfeiting, and product piracy in the host country-region where the transaction will be executed…?
The above represents only a few (but key) considerations company transaction, due diligence, and negotiation teams should consider. But, I especially urge companies to not dismiss these issues/questions solely for transaction expediency.
It’s especially important to recognize that asset hemorrhaging (caused by infringement, theft, misappropriation and/or product piracy and counterfeiting) can occur well before the ink dries on a transaction contract. Too, it’s an unfortunate reality that some transaction management – negotiation teams (still) assume they can consummate deals and create revenue streams from acquired – purchased (intangible) assets before those assets will succumb to any adverse or illegal acts.
In the ultra-competitive, aggressive, predatorial, and winner-take-all global business transaction environment, a management team’s dismissive attitude toward such probabilities, if not inevitabilities, in my view, could quite accurately be characterized as permissive neglect!
(Adapted by Michael D. Moberly and inspired by Pat Choate’s ‘Hot Property’, The Stealing of Ideas In An Age Of Globalization and the more current work of Dr. Joel Brenner in his book appropriately titled ‘America the Vulnerable: Inside the New Threat Matrix of Digital Espionage, Crime, and Warfare’.)
Intangible Assets In Acquisitions: Pre-Post Deal Due Diligence and Asset Monitoring Is Essential
January 31st, 2012. Published under Analysis and commentary, Business Transactions, Enterprise risk management., Intangible Asset Value. No Comments.
Michael D. Moberly January 31, 2012
As conveyed many times before, I still say with confidence; in most business transactions today, intangible assets not only will, but should be integral to consummating a deal. That’s particularly true for acquisition targets rich in knowhow and intellectual capital as sources of value, revenue, and competitive advantage.
For acquisition management and due diligence teams, the prospect of acquiring (intangible) assets whose contributory value:
- is complimentary, readily transferable and exploitable, and
- can quickly be converted/applied to advance a near/long term business strategy
…should be recognized at the outset as essential elements to achieving the projected (anticipated) benefits of an acquisition.
The role of intangibles to a successful acquisition is especially relevant in light of the globally universal (economic) fact that 65+% of most company’s value, sources of revenue, building blocks for growth and sustainability today evolve directly from intangible assets! Acquisition management and due diligence teams must recognize that a successful acquisition does end at the point in which a target’s assets have been ‘legally’ acquired.
It’s also about ensuring the (intangible) assets are effectively integrated and utilized by an acquiring firm. This requires an in-depth understanding of intangible assets coupled with and processes which are quite different from the acquisition of conventional tangible (physical) assets in which usage is a more readily understood. Intangibles, it must be understood, lack physicality. They are embedded in a target’s intellectual, relationship, and structural capital. Too, intangibles can be fragile, somewhat volatile, and certainly vulnerable to a host of risks in which their contributory value erodes and competitive advantages are undermined.
Acquisition due diligence and management should therefore, be structured to include pre and post transaction components, e.g.
First – unravel and assess each of the key assets’ status, i.e., stability, fragility, defensibility, and transferability
Second – continuously monitor those key assets value and materiality throughout the acquisition process
Third – put in place measures to ensure the acquiring firm can sustain un-challenged control, use, and ownership of the assets.
For any acquisition or business transaction in which the pre and post perspectives are omitted or poorly executed, the likelihood that costly and momentum stifling (post deal) surprises will arise have, in my view, become not mere probabilities, rather inevitabilities!
While visiting my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) . Should you find particular topics of interest or relevant to your circumstance, I would welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com
Unwarranted Sense Of Urgency Should Not Dominate Business Transaction Negotiations…
January 18th, 2012. Published under Business Transactions, CFO's, Due Diligence and Risk Assessments, Intangible asset assessments/audits.. 1 Comment.
Michael D. Moberly January 18, 2012
Intangible assets are increasingly valuable commodities that can be leveraged to allow management teams and boards to pursue a broader range of business transactions and/or alliances. Too, intangibles will almost certainly be integral to negotiating a deal in terms of pricing and the fact they can be bought, sold, transferred, traded, assimilated, or licensed.
Why? Because 65+% of most company’s value, sources of revenue, and building blocks for growth lie in – evolve directly from intangible assets!
Experience tells us that if there was a scale for transferability, replication, and/or imitation of intangible assets they would surely score high on all counts. This is, intangible assets, in most instances are vulnerable to value erosion, undermining and competitive advantage hemorrhaging. In other words, they can become impaired in some manner relative to their ability to produce/- deliver the projected value, competitive advantages, and revenue streams after the deal has been closed.
This makes it all-the-more essential for transaction management teams to be alert to the potential for, if not the probability that, at some level, asset hemorrhaging will (can) occur in either pre or post transaction contexts. In some instances, asset hemorrhaging can literally commence before the ink dries on a transaction contract.
A key starting point to prevent or at least mitigate any such asset hemorrhaging is to avoid permitting an unwarranted sense of urgency and/or speed to affect the thoroughness of the transaction management teams’ responsibilities. When management teams view a transaction primarily through a lens of urgency and speed, a frequent consequence is that critical due diligence, particularly intangible asset assessments, become hurried and follow an ill-conceived or old ‘check the box’ approach that does not consider ways in which the assets can be adversely affected in both pre and post transaction contexts, as they should.
Of course, in today’s hyper-competitive and predatorial global business transaction environment, it is likely there will be multiple and simultaneous suitors or players to a transaction which often drives, unduly in many instances, a sense of urgency and speed to consummating the deal.
Today, transaction management teams are obliged, in my view, to structure their role, particularly how due diligence and intangible asset assessments are conducted in a manner that:
- recognizes the necessity to retain control, use, ownership, and monitor the value and materiality of the assets as being essential to negotiating a profitable and sustainable transaction outcome
- secures approval to integrate intangible asset protection and monitoring commencing at the earliest stage and throughout the transaction negotiation process
- reduces the probability of and be promptly alerted to internal-external acts or materialization of risks that can
– undermine asset value, competitive advantages and the assets’ ability to continue to produce revenue
– trigger costly and time consuming legal disputes and challenges that can disrupt the momentum of and/or jeopardize an otherwise viable transaction.
While the goal of a transaction management team remains the same; to facilitate stronger, more secure, and profitable transactions, it’s now prudent to include an intangible asset specialist on the team, who can, among other things, identify, unravel, and assess the value, risks, defensibility, and sustainability of the intangible assets that are actually in play.
Patents and Patent Value: The Importance Of Due Diligence
December 28th, 2011. Published under Business Transactions, CFO's, Intangible asset protection. No Comments.
Michael D. Moberly December 28, 2011
Let’s start again with this economic fact, 65+% of most company’s value, sources of revenue, and building blocks for growth lie in – directly evolve from intangible assets and intellectual properties! It’s certainly rational then to presume that in a significant percentage of business transactions, e.g., mergers, acquisitions, and even venture capital investments, intangible assets and IP will be in play and very much part of a deal.
In that regard, transaction due diligence should be ‘laser focused’ to achieve two key objectives:
- identify, unravel, and assess the status, stability, fragility, and sustainability of the targeted IP and other intangible assets, and
- ensure control, use, ownership, and value of those assets are sustainable and monitorable in both pre and post transaction contexts.
Patents can obviously be significant sources of competitive advantage, value, and potent (defensive – offensive) weapons to be leveraged in the marketplace which makes monitoring their status, sustainability, and value essential elements in due diligence with a strong bearing on a transactions’ success.
However, patents are widely presumed, sometimes naively so, to be the strongest form of intellectual property protection available, because of their (presumed) deterrent value insofar as affording their owners (or, licensees) the legal standing to exclude all others from making, using, selling, offering for sale, or importing the claimed subject matter for a period of years.
But, there are realities that are often times overlooked or dismissed regarding the deterrent value of issued patents that seldom surface in conventional, snap-shots-in-time, one-size-fits-all due diligence processes. That is, today, all forms of intellectual property are vulnerable to compromise, theft, misappropriation, counterfeiting, infringement, and competitive advantage undermining (value erosion) from an acutely competitive, highly predatorial, and winner-take-all global business environment. The risks and vulnerabilities to any company’s intellectual property and intangible assets today are persistent and asymmetric.
So, in my judgment, relying one of the several formulas for calculating the (current, future) value of a targets’ IP and other intangibles must include a big ‘it depends’. That is, patent value depends on the comprehensiveness and experience of a transactions’ due diligence team which must include monitoring the targeted assets pre and post transaction!
While visiting my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) . Should you find particular topics of interest or relevant to your circumstance, I would welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com
Understanding Intangible Assets Leads To Better Business Decisions…
December 16th, 2011. Published under Business Applications, Business Transactions, CFO's, Company culture and reputation., Fiduciary Responsibility. No Comments.
Michael D. Moberly December 16, 2011
Without dispute, it’s an economic fact that today 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth lie in – directly evolve from intangible assets!
But, it’s no longer sufficient for management teams to merely know what intangible assets are or which one’s their company produces and possesses or follow the conventional accounting path of lumping them altogether (indistinguishable) as goodwill. It’s now essential, if not a fiduciary responsibility to:
- sustain control, use, and ownership of the assets
- know precisely how the (intangible) assets contribute to a company’s value, revenue, and sustainability
- understand how to leverage-position the assets to extract as much value and competitive advantage as possible
- exercise effective stewardship, oversight, and management of the assets and consistently monitor their value and materiality.
By achieving this level of operational and financial familiarity with a company’s intangible assets, numerous and enterprise wide multipliers can follow, for example:
1. Add predictability to business transactions when intangible assets and IP are in play by being able to assess the stability, fragility, defensibility, and sustainability of the assets (due diligence).
2. Elevate probability that projected returns will be achieved, competitive advantages will be sustained, asset synergies/efficiencies will occur, and exit strategies affirmed.
3. Achieve effective convergence of accounting, reporting, and asset valuation by recognizing the linkages to:
a. knowledge management programs
b. intellectual property development and enforcement
c. Sarbanes-Oxley and FASB compliance
d. utilizing the balanced scorecard.
4. Reduce probability of costly, time consuming, and momentum stifling legal challenges and disputes regarding the assets by foreseeing circumstances that can ensnare and/or entangle (intangible) assets to impede, erode, or undermine a transaction’s value, competitive advantages, or projected performance.
5. Build an ‘intangible asset’ company culture that contributes to:
a. recognizing, producing, and sustaining control, use, ownership, and value of intangibles
b. providing the necessary awareness to accelerate the pursuit of asset rights issues, i.e., ownership, value, infringement, misappropriation, theft, etc.
6. Develop a comprehensive organizational resilience (continuity-contingency) plan that encompasses all forms/contexts of intangible assets in order to produce a stronger and quicker recovery following a significant business disruption or natural disaster.
While visiting my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) . Should you find particular topics of interest or relevant to your circumstance, I would welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com
Poaching Business Information…The World’s Oldest Profession!
December 7th, 2011. Published under Business Transactions, Due Diligence and Risk Assessments, Insider Threats. No Comments.
Michael D. Moberly December 7, 2011
There’s still room to debate just what really constitutes the world’s oldest profession. From where I sit, albeit a biased position of university teaching, research, and consulting in information asset protection matters for 25+ years, it’s certainly not prostitution as many like to euphemistically suggest.
Of course, when I use the word ‘poaching’ as I have in the title of this paper, I’m not referring to poaching in the medieval European context, wherein a ‘poacher’ was one who intentionally, and with stealth, trespassed on another’s property to hunt and kill game.
Today, the word poaching has a slightly different context. It’s about poaching of (for) intangible (information-based) assets during the course of a business transaction, or sometimes more accurately, a faux business (transaction) interest in which one party is trying to get something (information) for nothing, that is, insights, perspective, experienced know how, etc., for perhaps only a cup of coffee at a Starbucks ‘business’ meeting.
The primary target of ’business information poaching’ today takes the form of acquiring intellectual (structural or relationship) capital, ala intangible assets and applying them for their own benefit.
So, what should prompt business management teams and boards to be leery of information poachers? The answer lies, as routinely stated in this book, in the economic fact that 65+% of most company’s value and sources of revenue today evolve directly from knowledge-based intangible assets. In most business transactions today, intangible assets and the intellectual (structural, relationship) capital embodied/embedded in those assets will not only be in play, i.e., an integral part of the transaction and will likely be shared and/or transferred under the parameters of the transaction’s contract. But some of the intangibles will surely morph into one or the other parties business operational coffers outside the boundaries of that contract.
As every business person knows some all too well, there is risk in any transactional relationship, in part, precisely because proprietary and/or competitive advantage information (intangible assets) will be shared among the parties for purposes specified in the contract. The risk materializes though, in many instances, when that information is used by one party for purposes outside or beyond the terms of the contractual relationship. In other words, the information will be used by the receiving party (poacher) to benefit them economically or competitively to the detriment of the other party.
Unfortunately, some will dismiss or relegate ‘information poaching’ as constituting just another inevitable cost of doing business, i.e., a new (additional) transaction cost of conducting business in an increasingly knowledge-based information-driven economy wherein increasing percentages of transaction value and projected sources of revenue evolve directly from information – competitive advantage laden intangible assets.
I’m reminded though of the computer manufacturer whose vice-president of operations announced, upon building multiple manufacturing sites in another country, that an estimated 25+% of the company’s intellectual property would be irrevocably lost (infringed, misappropriated) during the life cycle of these newly established manufacturing sites.
Under these types of circumstances, referring to this phenomena (business information poaching) as merely constituting a transaction cost endemic to the knowledge-based economy is, at best, an understatement!
The consequences (criticality) attendant to business information poaching risks can obviously be significant and long lasting, if not terminal, for company’s today, particularly relative to supplier relations and contractual governance. Insofar as remedies are concerned, the option of a business becoming isolationistic, i.e., not share or transfer business information under any circumstance, is obviously neither feasible nor practical, that is, if a business wants to remain a going concern and be successful and profitable.
However, if entrepreneurs, faculty inventors, start-up or spin-off management teams and boards exercise prudence upfront, during the contract negotiation period, relative to what information assets will – will not be shared or transferred, etc., with transaction partners is, in most instances, critical. The goal of course, is, at the end of the day, control, use, ownership, value, and materiality of information-based (intangible) assets before, during, and after a transaction has concluded, remain intact on behalf of the rightful originator – owner.
(This paper was inspired by the work of Clemons and Hitt in their paper titled ‘Poaching and the Misappropriation of Information: Transaction Risks of Information Exchange.)
While visiting/reading my blog, you are encouraged to browse other topics/subjects (left column, below photograph) . Should you find particular topics of interest or relevant to your circumstance, I would welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com
