Michael D. Moberly September 18, 2009
Due diligence management teams must be fully cognizant of the reality that the control, use, ownership, value, and materiality of the targeted (intangible) assets do not remain static assets during the (due diligence) process. They are subject (vulnerable) to being compromised, misappropriated, competitive advantages undermined, and/or value eroded if not properly monitored in both pre and post transaction contexts. In fact, there’s good evidence to suggest asset vulnerability actually elevates during this time.
What’s more, any of those adverse events (outcomes) can occur in rapid-fire order and cascade throughout the transaction and change its entire structure, e.g., adversely impact the projected (sought after) economic and competitive advantage benefits initially envisioned for the transaction.
Another reason why its important to continually monitor intangible assets throughout a due diligence process is because the time frame when buyers and/or sellers of the intangibles can leverage – extract – realize the most value is continually being compressed. This is due, in no small part, to the globally predatorial business intelligence and data mining operations, among other things, that can rapidly ‘get out front’ of deals and/or transactions to adversely affect (undermine, erode) an assets’ (strategic) value and thereby render the transaction less attractive or severely hamper its (envisioned) viability.
The considerations described below represent additional factors that should be taken into account when management teams ‘frame and structure’ a due diligence strategy, any one of which can constitute either a ‘red flag’ or signal a probability that the transaction will be effective, i.e., is there evidence of:
1. a broad company culture that genuinely recognizes the value of the core (revenue – value producing intangible) assets?
2. consistent stewardship, oversight, and management of those assets?
3. consistency in the representation of those assets, ala Sarbanes-Oxley, FASB, etc., in which risks, value, materiality, and financial performance are accounted for and measured?
4. business continuity-contingency planning that includes the core intangible assets?
5. strategic planning intended to achieve fuller utilization (monetize, extract value) from the intangible assets?