Michael D. Moberly November 15, 2008
With such significant percentages of deal – transaction value lying in a targets’ intangible assets, due diligence must be much more than a cursory or confirmatory review of the presence, absence, and/or position of particular assets, i.e., intangibles and intellectual property. And, to be sure, it must provide more than subjective, snap-shot-in-time estimates of their value. Instead, due diligence must provide (bring) unequivical clarity to decision makers regarding, among other things, the fragility, stability, defensibility and strategic value of the targeted assets.
I am not alone when I suggest the strategic value of intangible assets cannot be properly or convincingly demonstrated by using conventional snap-shot-in-time techniques because, in today’s aggressive, globally competitive, and winner-take-all transaction environments, asset value and materiality can fluctuate rapidly, especially if adverse circumstances exist and/or the assets are subject to compromise, misappropriation, infringement, erosion, or undermining (pre-post deal).
It’s particularly important today, for the framers’ (those charged with structuring) deals – transactions to recognize that conventional forms of intellectual property enforcement (i.e., patents, copyrghts, trademarks) are not synonymous with either party being able to sustain-preserve control, use, value, or even ownership of the targeted assets. This should be a special concern in post-transaction contexts.
One, of many reasons why its important to integrate these and other perspectives in due diligence strategies’ today, is that the time frame when holders, buyers, and/or sellers of intangible assets can realize-extract-leverage the most value (from them) is being continually compressed due in no small part to the globally predatorial business intelligence and data mining operations that can, when successful, rapidly ‘get out front’ of competitors’ deals and/or transactions to adversely affect (undermine, erode) an assets’ (strategic) value.
What follows are a few issues parties’ should consider as they ‘frame and structure’ their due diligence strategy in deals and/or transactions particularly with respect to targeted intangible assets, i.e., is there evidence of:
1. a broader company culture that recognizes the value of the targets’ core (revenue – value producing intangible) assets?
2. consistent stewardship, oversight, and management of those assets?
3. consistency in the representation of those assets, i.e., Sarbanes-Oxley, FASB, etc., in which risks, value, materiality, and financial performance are accounted for and measured?
4. business continuity-contingency planning that includes core intangible assets?
5. strategic planning intended to achieve fuller utilization (monetize, extract value) from the intangible assets?
