Archive for 'Business Transactions'

Intangible Asset Pre-Post Due Diligence

February 17th, 2017. Published under Business Transactions, Due Diligence and Risk Assessments. No Comments.

Michael D. Moberly February 17, 2017 ‘A business intangible asset blog where attention span really matters!

Re: Mergers – Acquisitions – VC – Market Entry Planning – Litigation Support – University-Corporate Research Alliances -Organizational Resilience

Regardless of however, whenever, wherever, or why IA’s are in play (relative to the various types of transaction noted above) IA specific, and pre-post due diligence is absolutely-essential to each type-category of business undertaking and/or circumstance.

Conceptually, the purpose (intent, objective) for designing pre – post IA-specific due diligence is multi-fold…

1. It is an irreversible and globally universal economic fact (business reality) that 80+% of most company’s value, sources of revenue, and ‘building blocks’ to competitive advantage, reputation, and sustainability lie in – emerge directly from IA’s.

2. When companies, particularly ‘IA intensive and dependent’ ones engage in any type of transaction, it is highly like their IA’s will be in play.

3. A key objective of conducting both pre, and post IA due diligence is to ensure the value, revenue generation capabilities, competitive advantages, and reputation, etc., produced by the IA’s in play, are, and will remain fully intact and the risks will be known and satisfactorily mitigated on both (pre, and post) sides of the transaction.

So, in circumstances in which…

• there has been no due diligence conducted specific to the key IA’s in
play, or

• the due diligence conducted was absent specificity, i.e., was
generic, ‘one-size-fits-all’ and resembled a conventional ‘check-the-box’
(due diligence) template more relevant to physical-tangible assets than
IA’s, or

• due diligence was conducted by personnel operationally unfamiliar with…

o IA’s and their contributory role(s) to retaining transaction value,
revenue generation, competitive advantage, and reputation, etc.,

o risks specific to IA’s that will, when they materialize, adversely
affect (undermine) IA’s contributory value, competitiveness,
transaction sustainability, and likely escalate reputation risk.

In circumstances when one, all, or a variation of the above occurs, the risk portrait for both the transaction and the IA’s in play will very likely shift from the probable to the inevitable, and that’s a ‘bad thing’ for investors and transaction sustainability.

Circumstances such as this, make it all-the-more essential for companies to have expertise at the ready to conduct effective and IA specific pre-post transaction due diligence. And, also, recognize how to leverage – exploit pertinent revelations (emerging from the due diligence) to…

• provide timely – objective insight to principals, i.e., regarding the
status, stability, fragility, defensibility, and sustainability of key
IA’s in play.

• serve as legitimate entrée for re-negotiating transaction terms, i.e.,
o increase probability transaction party will be positioned to hand-off
more valuable, uncontested, and competitive IA’s.
o reduce probability of incurring time consuming, costly, and momentum
stifling disputes that undermine IA contributory value and competitive
advantages.

• elevate principle’s confidence in invest-don’t invest, buy-don’t buy
decisions.

• ensure legitimacy-authenticity of the origins, ownership, contributory
value, and competitive advantages of the IA’s in play.

• determine why, how, who, and when the IA’s in play were targeted, risks
attached and materialized, and asset value-competitive advantage
hemorrhaging commenced, and by how much.

Intangible Assets Integral to Transaction Negotiation Strategy

February 14th, 2017. Published under Business Transactions, Intangible asset strategy, Transaction negotiations and intangible assets.. No Comments.

Michael D. Moberly February 14, 2017 A business blog where attention span really matters!

Management teams’ who commence negotiating a business transaction based on a strategy which has been framed predominantly, if not solely, on the content of a (conventional) balance sheet and/or financial statement, which as noted here, are variously dismissive of – omit acknowledging contributory role, value, and competitive advantages produced by IA’s (intangible assets) will lead (unnecessarily) to impasses and/or ‘walk-aways’. Both rise in probability when either party enters a negotiation absent benefits of being operationally familiar with the IA’s that will inevitably be in play!

True, IA’s are seldom, if ever reported (accounted for) in conventional financial statements, balance sheets, or valuations. Such omissions (under or non-reporting of IA’s) are tolerated because accountants, auditors, valuators, tax, and legal sectors are obliged to interpret – report IA’s in accordance with the various standards-statutes set forth by relevant state-federal regulatory-oversight bodies, academic disciplines, and professional association certification. Operationally, these obligations, given their origins in statutes and standards, translate as predispositions to conceive- apply IA’s in quite narrow contexts, and perhaps worse, are likely to be characterized as mere conglomerations of undifferentiated goodwill. Please note, for the record, ‘goodwill’ is but one (single) type or category of IA.

Of course, those perspectives about IA’s stand apart from the broader – more expansive context for addressing – executing on IA’s espoused here which solidly originate in the economic fact – business reality that 80+% of most company’s value and sources of revenue, etc., lie in – emerge directly from IA’s. This economic fact should not go in-noticed or under-estimated, particularly when negotiating most any transactions’ value, competitive advantages, sector standing, and future performance.

Achieving operational familiarity with IA’s in advance, warrants attention here and now because anyone with responsibility for negotiating a business transaction, but commence it, absent familiarity with IA’s will surely find themselves, and whomever they represent, negotiating with an incomplete portrait of the other parties assets, how those assets will be (are) in play, and can influence (negotiation, transaction) outcomes, i.e., success, sustainability, and profitability, or failure. This oversight (neglect, dismissiveness) can also serve (unnecessarily) as entrees upon which (negotiation) confusion, distortions, unsubstantiated generalities, impasses, and walk-aways will undoubtedly occur.

So, in my judgment, business leadership and management teams that have achieved IA operational familiarity in advance of a transaction overture, i.e., they recognize the presence, contributory role, value, and competitive advantages produced by IA’s, will clearly have a strategic (lucrative, competitive) advantage. This is particularly apropos as growing percentages of industry, trade, and commerce, globally, originate from IA intensive and dependent businesses.

With respectful confidence, the clarity, differentiation, performance measuring, and valuing of IA’s advocated here and recognized as (transaction) negotiation requisites, will sure to lead to more lucrative, competitive, and sustainable (project, transaction) outcomes, whenever, however, or wherever IA’s, are in play.

On the other hand, when-if transaction negotiations, preliminary or otherwise, are undertaken absent leadership-management team acknowledgement for IA development, contributory value, competitive advantage, materiality, and risk, etc., will likely experience outcomes that produce substantially less value, revenue, competitiveness, and sustainability that projected and desired, which frequently translates as some level of failure and unnecessary squandering of resources with little or no return.

Prudent objectives for business leadership and transaction negotiation management teams are to…

• acquire sufficient operational familiarity with key (operational) IA’s of
their firm, but equally important, the firm(s) in which interest is being
exhibited.

• of course, learning how to do this objectively and distinguish
the relevant from the irrelevant are essential in terms of efficiency,
effectiveness, and framing strategy-tactics and values.

Respectfully, it’s worth noting again, if IA’s are omitted, dismissed, or otherwise deemed irrelevant to a (business transaction) negotiation in which IA’s and tangible-physical assets will be bought, sold, traded, etc., but subordinates the IA’s in play to convention and/or past practice, it’s likely outcomes will be measurably less lucrative, competitive, and sustainable, but carry higher risks, as they otherwise could.

On the other hand, correctly identifying IA’s in play, whether it is for strategic-tactical planning, decision making, and/or negotiations are not responsibilities relevant only to Fortune-ranked firms. Instead, IA’s play clear and important roles in small and medium-sized companies, businesses, and start-ups!

Intangible Assets, What Companies, Management Teams Are Obliged To Know Now!

February 11th, 2017. Published under Board oversight, Business Transactions, Fiduciary Responsibility, Intangible asset strategy. No Comments.

Michael D. Moberly February 11, 2017 A business blog where attention span really matters!

Integral to business operability, and certainly as a prelude to undertaking – engaging in any new initiative or transaction wherein IA’s are ‘in play’, i.e., bought, sold, acquired, or traded, etc., leadership and management teams are obliged to know, with sufficient specificity, how to distinguish, measure, and monitor…
• what IA’s are, their rightful owner-originator, and which IA’s are in play.
• IA’s contributory role to value, revenue, competitive advantages, and asset commercialization opportunities.
• IA value and performance throughout their respective life, value, materiality, and functionality cycles.
• and, identify and mitigate IA risks in both pre, and post (transaction) contexts, particularly risks which, if materialized, would undermine – erode asset value, a project’s momentum, and most, if not all, competitive advantages.

Today, with ‘keystroke capability’, businesses can rapidly engage in global competition and enter new markets, each variously enabled by at will access to ‘always on’ worldwide (intermodal) supply and distribution channels ala air freight carriers, containerized ocean-rail shipping, and e-commerce.

These comparatively new, but, very integral enablers – components to global trade are consistently tweaking their ‘logistics’ through inputs of intellectual, relationship, and structural capital, ala IA’s, to create more efficiency, speed, capacity, and on-time delivery. Such capabilities permit mature, new, and emerging businesses alike, regardless of size, sector, location, product, or volume, to distribute their products and services whenever and wherever markets exist, or are emerging, and do so rapidly and absent the burdensome expense and time to independently configure conventional supply-distribution channels.

The at will availability-access to these now ‘infrastructured’ intermodal services represent factors that further influence business leadership to look – think more forwardly, e.g., consider where, when, how, and which type-category of IA (ala, collaborations of intellectual, structural, and relationship capital, etc.) should be introduced to produce the most effective, competitive, and profitable outcomes.

A parallel aspect to these ‘infrastructered’ intermodal assets, is recognizing the necessity to consistently invest in developing, acquiring, and integrating nuanced-specific IA’s to accommodate continuous improvement, create efficiencies, sustain-build competitive advantages, increase-stabilize company-IA value, and utilized-exploited to develop new-additional sources of revenue.

An especially important capability, of course, is being able to determine their (IA’s) impact on – relationship to company-shareholder value. This value, in my judgement, and that of others, should no longer be limited by either the content or how conventional balance sheets and financial statements are framed. Instead, company (business) value should convey whether-or-not, i.e., a measure of how well, a company develops, safeguards, uses, and exploits IA’s under its control, e.g., as coordinated spring boards, building blocks, and/or paths to elevating (asset) value, revenue, competitive advantages, and wealth creation potential.

It is indeed an understatement, to assume business operability today is enmeshed in anything less than a ‘sea change’ as its operational interface with IA’s rise routinely. The IA phenomenon is, what I refer to, euphemistically, as an ‘inevitable unknown’. By that, I mean, there were numerous indicators appearing within and throughout companies and businesses, often, in advance of the publication of respected studies which surfaced IA’s actual (contributory) role and value, had more attention been paid.

So, another upshot to this total economic shift to IA’s is business leadership directing – allocating proportionately fewer resources to company’s physical-tangible assets and more resources to IA’s in play, i.e., their development, monetization, and exploitation of (their) competitive-creative capital.

For all the forward-looking insights that surfaced through the Brookings Institution’s ‘Intangibles Project’ and complimentary research conducted in the EU, there is no indication these projects were undertaken solely or even primarily, to influence revisions to conventional (IA) reporting, accounting, taxing, or the standards, statues, and regulations the relevant professions are obliged to uphold. But, to be sure, notions to that affect have occurred.

Transaction Risk to Intangible Assets

July 26th, 2016. Published under Business Transactions, Due Diligence and Risk Assessments. No Comments.

Michael D. Moberly July 27, 2016 ‘A blog about business and intangible assets’!

By now there should be no question among company management teams that the global business transaction environment is increasingly competitive, aggressive, predatorial, and generally, winner-take-all.

A contributing factor to these circumstances is that growing percentages (80+) of most company’s value, sources of revenue, and ‘building blocks’ for wealth creation and competitive advantage reside in – emanate from intangible (non-physical) assets, not tangible (physical) assets. It would make sense then, due diligence – audit activities that dismiss or omit IA’s (intangible assets) from their purview will not provide decision makers with insightful and essential information. Dismissiveness and prejudiced insight are the foundations of transaction grief, frustration, and disappointment in terms of IA performance.

IA’s will always be in play. So it is, business transactions involve the valuation, buying, selling, development, and commercialization of IA’s. It’s prudent then, for parties to business transactions, i.e., IA buyers primarily, recognize the importance of ‘getting out front’ by acknowledging and mitigating risks that will adversely influence how a transaction will be valued, structured, and ultimately executed.

Business persons who remain unconvinced and trivialize the contributory value and role IA’s play in transaction outcomes are encouraged to consider when risks materialize, i.e., acts of misappropriation, infringement, and/or compromise how long will it take the adversary to integrate those assets into their products and/or services? The answer of course is, a matter of days or weeks, seldom months or years. Again, dismissing these realities all-to-frequently manifest as devaluation of reputation and minimal, if any, gains. To do otherwise, decision makers would need to possess prognosticative psychic powers which I am reluctant to attach much, if any, validity.

Exacerbating these increasingly probable risk events is the rarity that transaction initiator’s due diligence plan-strategy will include IA value and competitive advantage monitoring components designed to alert, stop, or stabilize asset hemorrhaging, or recover compromised assets before substantial, and many times irrevocable asset value, loss, and/or reputation risk materialize.

Transactions in which key IA’s have already been compromised (in one form or another) actually constitute a ‘head start’ for the adversary, i.e., parties or party engaged in the illicit acquisition and use of another’s IA’s. While actual IA losses in these circumstances, i.e., value, competitive advantage, reputation, image, goodwill, structural capital, etc., may appear somewhat subjective, it’s pragmatic, in my view, to measure losses – compromises less in (conventional) dollar value contexts, and more in terms of the speed which such adverse acts occur and their irrevocability. So, is a well-constructed, thorough, and IA-specific due diligence warranted, you bet!

Unfortunately, there remain many IA buyers (business transaction, M&A’s, etc., which I characterize as engaging in ‘permissive neglect’ with respect to identifying, monitoring, and safeguarding about-to-be purchased IA’s. That is, they repeatedly and erroneously assume…

• any economic and/or competitive advantage a competitor or adversary may glean from compromised IA’s 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.
• IA’s 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 of the above assumptions.

Professional Service Firms and Intangible Assets

May 23rd, 2016. Published under 'Safeguarding Intangible Assets', Business Transactions, Fiduciary Responsibility, Professional service firms.. No Comments.

Michael D. Moberly May 23, 2016 ‘A blog where attention span really matters’!

The rationale underlying any business initiative – transaction should always be to maximize and ultimately extract as much value as possible from the assets in play because it’s an economic fact that…

…80+% of most organization value, sources of revenue, sustainability, competitiveness, and wealth/profit creation today lie in – directly evolve from IA’s (intangible assets).

It is then, an organization’s IA’s that will most always be in play because they are integral to both…
• transaction value, and
• near term outcomes.

This economic fact – business reality presents various fiduciary obligations to PSF’s and company decision makers irrespective of whether they are the originator, owner, buyer, or seller, etc.,

…to know, with the necessary specificity, what IA’s are and how to identify, unravel, and sustain their control, use, ownership and value throughout their respective economic, competitive, and/or functionality cycle and certainly a relevant pre-post (transaction) period of time.

Seldom can asset value maximization – extraction be fully achieved using conventional, generic precepts, checklists, or mere confirmatory reviews of registrations and filings. That’s because, the pillars of any organization’s IA’s are it’s…
• intellectual,
• structural,
• relationship, and
• competitive capital.

…which are routinely embedded in operations, processes, and/or functions that create efficiencies, competitiveness, brand, and value, etc., and generally lie under most conventional business radar.

So, when the motive – objective for parties is to initiate and/or be receptive to a transaction, there must be skill sets applied in advance to identify, unravel, preserve. maximize, and extract as much value as possible from the relevant assets in play, particularly, the IA’s. It’s prudent then for PSF’s (professional service firms) retained to support-oversee such transactions, regardless how small or periodic they may occur, possess current operational skill sets necessary to…

…strategize about ways to achieve sufficient operational familiarity with IA’s to respectfully engage business clients to recognize, assess, and distinguish their composition and contributory role and value in the global market space, particularly if/when the assets are effectively integrated, bundled, and safeguarded in both pre and post transaction contexts.

In far too many transactions, IA functionality – contributory value is overlooked, improperly assessed, misunderstood, or neglected insofar as the integral and contributory role they consistently play as sources of revenue, value, and competitive positioning.

The ‘Business IP and Intangible Asset Blog’ is designed to elevate awareness – bring operational familiarity to IA’s in the irreversible global business environment where 80+% of PSF’s business client’s value and sources of revenue actually lie.

To dismiss the importance for PSF’s to integrate this dimension into their practice area – service deliverables will, at minimum, manifest as adversely impacting firm’s billable revenues, competitive positioning, brand, and attractivity. On the other hand, offering IA services to existing and prospective clients is nearing a requisite for being consistently recognized as horizonal in the delivery of relevant and effective services to business clients in 2016, and for the foreseeable future.

The root of such services lie in preparing – positioning business clients to identify, preserve, safeguard, and extract value, efficiency, competitiveness, and sources of revenue from their IA’s. And, doing so, will most certainly, favorably affect their sustainability and outcomes to any transaction they wish to enter.

Business Transactions Go Fast, Go Hard, Go Global With Intangible Assets

April 26th, 2016. Published under Business Transactions, CFO's. No Comments.

Michael D. Moberly April 26, 2016 ‘A blog where attention span really matters’.

In no other arena of economic and social relations has the statement “knowledge is power” (Sir Francis Bacon) proven more relevant than in today’s global business economies wherein operations and transactions are increasingly rooted in the creation, utilization, and conversion of IA’s (intangible assets), particularly intellectual, structural, relationship, and creative capital…

To consistently and lucratively exploit their IA’s, holder’s must be positioned to sustain indeterminate control, use, ownership, and monitor their value, materiality, and risk.

Collectively, this makes IA’s relevant to each practice area-specialization of law.

Achieving operational familiarity with client businesses which are IA intensive-dependent is an unqualified entrée for professional service (law) firms to expand offerings to reflect the economic reality that business activities-transactions are now routinely dominated by and contingent on continuity of development, utilization, exploitation, and safeguarding their IA’s!

Many businesses-organizations remain in the early stages of the knowledge (IA) era, even though IA’s have become permanent fixtures-components to business economics as sources of value, revenue, and competitive advantage, etc.

Achieving operational familiarity with IA’s, is an outcome of this seminar which sets the stage for each (law firm) practice area – specialization to become a collaborative, competitive, and sought after leader whenever and however IA’s are in play.

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. 2 Comments.

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…

www.nbr.org/publications/element.aspx?id=520.