Michael D. Moberly July 27, 2009
Today, when negotiating, performing due diligence for, and/or executing business transactions it’s important for management teams to not be dismissive about the role that ‘secure’ intangible assets play in the outcome. The more familiar (alert) management teams are to intangible assets and their management, e.g., their role – contribution to transaction value, future company growth, and overall sustainability, the more likely a favorable outcome will be in the offing.
Whether its the buy or sell side of a transaction, the objectives are similar, which is to ensure management teams fully recognize and assess intangibles that are so essential to transaction (near term, long term) profitability and success. That’s because factors such as (asset) status, fragility, stability, control, usability, and ownership will, with increasing frequency, affect transactions and their outcomes.
In many instances, transaction team reluctance to duly recognize the relevance of intangibles is attributed to a mistaken assumption that intangible assets are synonymous with intellectual property, thus, conventional IP protections, e.g., patents especially, are sufficient safeguards for the assets in play and will deter would-be infringers, thieves, fraudsters, and misappropriators. A counter view however, and one more reflective of todays aggressive, predatorial, and winner-take-all transaction environment, is that conventional IP protections are more akin to reactive swords, rather than proactive shields, and carry little, if any deterrent affect. In other words, the real value and benefits that well protected and preserved intangible assets bring to a transaction can be significantly diluted, undermined, or even irrevocably lost when management teams overlook and/or don’t factor those realities.
A positive, perhaps first, step management teams should consider to consistently and favorably affect a transactions’ outcome, is to recognize the importance of conducting an inventory and/or assessment of the assets, applying a ‘business impact analysis’ methodology in both pre and post transaction contexts. An intangible asset assessment is a thorough, systematic, and circumstance-company specific procedure that objectively describes the (a.) status, (b.) stability, (c.) fragility, (d.) sustainability, and (e.) vulnerability of the assets in play.
Further, its important to test those assets insofar as their ability to sustain the transactions’ projected (a.) objectives, (b.) returns, and (c.) exit strategy under various circumstances, e.g., embellished respresentations, fraud, misappropriation, business intelligence, and infringement, etc., anyone of which, should they occur, will, most assuredly, adversely affect a transactions outcome. The objective here is to enable/facilitate a more secure and profitable transaction to go forward, not impede it!
Finally, it’s important that management teams’ recognize that intangible assets will almost always be part of any transaction, especially in light of the economic fact that 65+% of most company’s value, sources of revenue, sustainability, and foundations for future wealth creation consistently lie in – are directly linked to intangible assets!