Michael D. Moberly July 21, 2010
There are numerous reasons why a business transaction may under-produce or fail outright, e.g., not deliver the desired results or projected outcomes. Some responsibility for a transaction’s failure or under-production lies, in my view, at the feet of management teams and boards who may not have given the consideration due, to what I believe, is the central, and perhaps greater question that has bearing on the outcome, e.g., ‘what’s really in play’?
While that question may appear esoteric, theoretical, or even irrelevant to some in the over-played sense of urgency attendant to many transactions, the answer to the question ‘what’s really in play’ in my view is much more relevant than some traditionalists and conventionalists are frequently inclined to believe or accept.
Traditionalists and conventionalists are respectful euphemisms (descriptors) I frequently use to describe the array of stakeholders that influence a business community and the deals and transactions that occur, but, whose perspectives and approaches to executing transactions remain largely embedded in tangible-physical asset domains.
I find, as I’m confident many readers of this blog do as well, traditionalists and conventionalists are frequently respected, experienced, and often successful business persons in their own right. They remain skeptical however, for a variety of reasons, about the notion that 65+% of most company’s value, sources of revenue and future wealth creation today actually lie in intangible, not tangible assets, regardless of it being a well settled economic fact. In that sense, they become ‘business development gatekeepers’ of sorts.
When considering or engaging a new transaction, be it a merger and acquisition, venture capital deal, strategic alliance, or a fairly straight forward buy-sell or licensing arrangement it behooves the party to frame the transaction by considering the question at some point during the engagement discussions and subsequent due diligence, ‘what’s really in play’?
This means drilling deeper (intellectually and practically) into the question. The response of course, must be much more than merely a spontaneous regurgitation of the (traditional, conventional) time honored rationale ‘we care about increasing revenues and making greater profits, otherwise, why else would the transaction even be considered’?
What’s really in play in a steadily growing percentage, if not most business transactions today, are intangible assets! Thus, a significant factor in the ‘business transaction and due diligence equation’ is literally, the ability to effectively achieve (address) these key objectives:
1. Identify and effectively exploit the key intangible assets embedded in the deal along with the attendant synergies and efficiencies.
2. Sustain control, use, ownership of those key assets and monitor (pre-post transaction) their value and materiality.
As growing percentages of company value and revenue are directly linked to – evolve from intangibles, there’s a growing body of evidence, anecdotal and otherwise, that points to management teams and boards that are dismissive or neglectful of either of the above, transactions will surely be put on a road to experiencing significant, but unnecessary, and often irreversible challenges insofar as being able to capitalize on the intangibles that are already in place.
For traditionalists and conventionalists though, crossing that chasm between the tangible/physical asset (business) world to the world now overwhelmingly dominated-driven by intangible assets, truly and respectfully presents some understandable challenges to past practice, particularly with respect to accounting, reporting, managing intangibles. But, regardless, that chasm must crossed intellectually and attitudinally, and, the quicker the better.
And, once conventionalists and traditionalists have crossed that chasm and arrived ‘on the other side’ it’s essential that intangibles become fully and routinely integrated into the various equations in which transactions and deals are conceived, framed, and benefits/outcomes calculated.
The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets. I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.
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