Michael D. Moberly July 28, 2016 ‘A blog that intersects intangible assets with business’!
As I have endeavored to convey since my initial post to this blog in mid-2006; the importance for business decision makers to recognize that, in each transaction they engage, correctly identifying, assessing, and mitigating risk to the IA’s (intangible assets) which play increasingly significant roles insofar as being consistently positioned to achieve the projected and sustainable outcomes!
The reason, steadily rising percentages (80+%) of most transactions’ value, projected sources of revenue, future wealth creation and competitiveness reside in – evolve from IA’s. That’s an objective and replicated economic fact, not business cliché or hyperbole. So, when business transaction management (M&A, due diligence) teams, etc., overlook, or elect to dismiss and relegate relevant IA’s, for whatever reason, i.e., IA’s not routinely reported – integrated in balance sheets or financial statement, it’s tantamount, in my judgment, to ignoring how/where value is created, revenue is generated, and sound strategic planning should originate.
In growing numbers of instances, engaging, identifying, assessing, valuing, and mitigating risks to IA’s most relevant to a transactions’ and/or operations’ projected and presumably lucrative outcome rises to a fiduciary responsibility ala Stone v. Ritter.
For decision makers, the implications are clear; an immediate charge to themselves and their transaction management team is to determine if IA’s are being correctly incorporated – addressed in the various tasks, i.e., due diligence, asset inventory, audit, and valuation, etc. Should decision makers find their transaction teams are doing neither, it’s fair to suggest achieving operational familiarity with business’s IA’s by sector and type of (reason for initiating a) transaction, would be a prudent undertaking and would produce revelatory insights that can be immediately applied to further transaction negotiations, i.e., mitigating risks by ensuring ownership, control, use, and value – competitive advantages of the relevant IA’s will be sustained.
As regular readers of this blog know, there is an abundance of business economic research (NYU’s Stearns School of Business, The Brookings Institute, and key UK universities) that consistently paint convincing and objective portraits about the that if and/or when a merger, acquisition, or other type of transaction ‘goes south’, evidence of impending problems and challenges will surface quite early and will likely stem from one or more intangible assets.
Each parties’ transaction management-oversight team is variously obliged to work collaboratively to reveal, unravel, and assess contributory relevance and value of IA’s. The reason, IA’s routinely and variously embedded and interact on multiple levels within an enterprise. In other words, IA’s (particularly intellectual, relationship, structural, and competitive capital) will very likely apply to multiple business – operational activities, initiatives, and projects. However, IA’s contributory role and value to routine business operations and/or a specific transaction can – will – may fluctuate, sometimes quite rapidly and not always for the better.
A technique I developed to determine and potentially remediate adverse (IA) fluctuations in a timely manner, relative to their dominant contributory role and value in transactions in a timely manner is to ensure an ‘IA transaction impact analysis’ is fully integrated into the (transaction) due diligence process in both pre and post contexts. As information derived from the (transaction impact) analysis is communicated to decision makers, a more definitive portrait of projected outcomes will arise, particularly materialization of risks which can adversely affect one or more of the IA’s in play.
The rationale for incorporating an IA transaction impact analysis for M&A’s and other types of business transactions is to better position decision makers to identify – become aware of risk circumstances – scenarios which, if they materialize, may impair or otherwise adversely affect the transaction via the IA’s in play.
I advocate IA ‘transaction impact analysis’ to focus primarily on what I find to be the three challenging IA’s to sustain – preserve their (projected, assessed) contributory role and value, particularly post-transaction, i.e., intellectual, relationship, and structural capital.
Transaction management team members undertaking – engaging in the ‘impact analysis’ are obliged to possess strong operational familiarity with (IA) risk mitigation and containment, i.e.,
• to recognize the inter-relatedness of IA’s insofar as their contributory role, value, and associated risks.
• how IA’s can become impaired, misappropriated, infringed and vulnerable to risk.
• to assess the probability that particular risks can-will materialize.
• how specific risks can adversely affect projected economics, competitive advantages, and/or synergies of a
• to assess the resiliency and sustainability of key IA’s.
Equally important, this ‘transaction impact analysis’ can reveal a range of risk circumstances/scenarios for decision maker consideration while retaining options to proceed with…
• viable plans for risk mitigation, as well as,
• aspects which re-negotiation may be warranted in light of the now known risk(s) and/or asset impairment(s).
The objective remains the same…to facilitate more secure, profitable, and sustainable transactions going forward, not impede them.