Michael D. Moberly April 28, 2015 ‘A blog where attention span really matters’!
With a significant level of confidence, most conventional, snap-shots-in-time, and subjective prognostications gleaned from IA (intangible asset) valuations and/or audits, do not provide prospective buyers, sellers, investors, or M&A management teams with the necessary insight reflective of today’s business economic realities and due diligence obligations.
Considering it is an indisputable economic fact that 80+% of most company’s value, sources of revenue, and by extension, favorable outcomes to business transactions are premised on a party’s ability to sustain control, use, ownership, and monitor (IA’s) value, materiality, and risk, each of which will inevitably be in play to impact a transaction’s outcome.
Business transaction valuation and due diligence should provide prospective buyers, sellers, investors, and M&A management teams with objective invest-don’t invest, buy-don’t buy clarity, e.g.
- IA sustainability, attractivity, demand , and receptivity to convergence.
- the frequency – intensity which the IA’s in play are targeted by – vulnerable to predatorial data mining, business-competitor intelligence, and economic espionage operations.
- assets’ proprietary status, competitive advantage components, or trade secrecy status.
The business valuation community argues that expanding the scope of IA valuations and due diligence to include these components exceeds the canons, doctrine, and statutes to which accounting, financial services, and legal are variously obligated to follow, i.e., state and federal accounting rules and regulations which stipulate what, which, and how IA’s are to be valued and reported on balance sheets and financial statements.
In fairness, state and federal accounting rules and regulations stipulate methodologies for calculating the value of IA’s. In many instances, I sense such valuations are unnecessarily narrow and fall short, one way is that IA’s are differentiated largely on whether they have been externally acquired or internally developed, and then consolidated under the single category of goodwill.
I suspect continued adherence to such conventional IA reporting and accounting rules will serve to further stifle – suppress management team’s interest in – motivation to profitably and competitively engage their organization’s IA’s beyond the narrow time-bound confines of goodwill, and
- explore the relevance of IA’s contributory value and functionality cycles, and IA’s
- IA’s vulnerability to various risks which, once materialized, will adversely affect – undermine asset’s value, functionality, and competitive advantage life cycle.
Admittedly, as an independent intangible asset strategist and risk specialist I do not feel bound by the exacting and conventional state and federal accounting rules and regulations. This represents a creative sovereignty that permits me to engage in respectful outside-the-box strategizing and asset risk management on behalf of IA clients.