A costly and often irreversible challenge companies unsuspectingly experience…when engaged in a transaction, i.e., buy, transfer, merger, acquisition, etc., is…
- learning the most desirable intangible assets have been infringed, misappropriated, and/or,
- the assets’ value as a source of revenue and competitive advantage have been undermined or erosion has already commenced.
Should either continue un-abated, un-mitigated, and un-monitored…it will, at minimum, place the transactions’ projected – desired outcome at substantial risk by disrespecting the…
- economic fact that 80+% of most company’s value, sources of revenue, wealth creation, competitiveness, and sustainability today, lie in – emerge directly from intangible assets.
So, it’s important for transaction managers and decision makers to concede this…intangible assets will inevitably be in play…
- as essential fixtures to each transaction being considered or already engaged.
- put-in-place (asset) safeguards to preserve and monitor the contributory role and value of the intangible assets in play
- throughout their life – value – functionality cycle and the transaction, i.e., pre – post transaction.
Transaction (intangible asset) due diligence is always warranted… particularly in today’s ‘always on’, aggressively competitive, predatorial, and ‘winner-take all’ global business (transaction) environment in which…
- asset loss, erosion, and undermining can occur at ‘keystroke speeds’.
However, when transaction due diligence is framed – conducted…through a conventional, IP (intellectual property) only lens…
- opportunities to recognize risk can be, and frequently is, under-estimated, overlooked, dismissed, or considered redundant, or worse, irrelevant
- to the presumptive deterrent effects associated with traditional IP enforcements, i.e., a registered patent, copyright, trademark, or trade secret.
Today, business transaction (intangible asset) due diligence is fiduciarily obligated to be…far more than a mere cursory review of (legal, accounting) documents, i.e., P&L’s, financial statements, and/or balance sheets, and the status of IP filings and registrations, etc.
I intend not to discount the importance of the above, however…through my lens, these documents often represent ‘snap-shots-in time’, i.e., incomplete glimpses into a company’s financial – competitive advantage circumstances and value chain.
Too, its unlikely these conventional ‘snap-shots’ will…surface, reveal, or distinguish the contributory role, value, sources of revenue, and competitive advantages produced – generated by intangible assets, which are…
- embedded – interwoven in various levels of a company’s intellectual, relationship, and structural capital.
More specifically, in conventionally practiced-conducted business transaction due diligence…these, and other characteristics and attributes of intangible assets, are unlikely to be recognized as having actual dollar value, serve as drivers to competitive advantages, or otherwise, have a bearing on a transactions’ outcome, that is, to business leaders who remain ‘operationally un-familiar’ with their intangible assets.
Again, be it an acquisition, merger, strategic alliance, partnership, buy-sell transaction, or new market entry initiative…each circumstance – type of transaction can quickly become mired in impediments and challenges, if-when the…
- IA’s in play are overlooked or not effectively unraveled relative to their origins, ownership, control, and the manner-in-which they are utilized and exploited.
This-is-why, I recommend transaction due diligence be intangible asset centric, and conducted in pre, and post (transaction) contexts.
Also, conventionally conceived ala ‘check the box’ due diligence templates…are generally unsatisfactory, with respect to intangible assets.
In part, that’s because they are seldom sufficiently inclusive, comprehensive, or forward looking to…
- capture, unravel, and monitor both ‘value and risk’ relevant to the intangible assets in play.
- too, such templates are often constrained by unwarranted anxieties and requests for speed.
So, a primary requisite to – objective for intangible asset due diligence…lies with unraveling, with the necessary specificity, circumstances pertinent to the relevant intangible assets…
- doing this effectively, provides superior knowledge – insights about a target and the transaction being undertaken.
- it also contributes to decision makers’ assessment – determination about whether the targets’ intangible assets (being sought) can sustain the terms and objectives of the proposed deal.
Businesses which know when to seek intangible asset strategists and risks specialists to…identify, assess, and monitor intangible asset status, circumstances, value, competitive advantage, sources of revenue, and risk, etc., as close to real time as possible, is, there should be no disagreement, ab essential prelude to successful outcomes.
That’s because these circumstances, when they are assessed as being adverse…are the frequent precursors to downward fluctuations in asset value, competitive advantage, and revenue…
thwarting and/or mitigating such risks, in my judgment, are pre-requisites for taking prompt and decisive action to sustain and/or re-gain control, use, and ownership of intangible assets and proprietary competitive advantages…
- delays in discovering and assessing the strength and/or eminence of such risks and containing-mitigating their adverse effects by not having experienced guidance in place to distinguish what-which action to take…
- can complicate, and even weaken near term – future position for achieving a favorable economic outcome to any transaction in which intangible assets are in play.
Contributors to most risk affecting intangible assets…especially infringement and theft, are unethical or illegal conduct of employees, insiders, and/or players to an impending transaction. Frequently each originates with…
- misplaced trust, operational-procedural oversights, aggressive competitor intelligence, and/or economic – competitive advantage intelligence-espionage.
Not surprisingly, each serves as more reason for conducting intangible asset and competitive advantage assessments are necessary. More specifically, when-if evidence of significant risk or probability of infringement are found, the transaction initiating company (buyer) will be better positioned to rapidly recognize and prioritize their options…
- one option is trying to (re-)establish ownership and/or (re-)obtain control and use of their idea-innovation.
- a second option is trying to stop – mitigate further economic – competitive advantage hemorrhaging of key intangible assets, especially intellectual capital and competitive advantages that may have already started.
- a third option is establishing a viable exit strategy to wholly extricate from the transaction with penalties being paid by the other parties.
Again, transaction (pre-post) due diligence regarding intangible assets in play…should describe, for decision makers, the status, fragility, stability, and defensibility of about-to-be-purchased and/or exchanged, including IP, and other forms of proprietary competitive advantages, by revealing, among other things, any evidence of – preludes to…
- over confident – embellished representations.
- purposeful or premature disclosures, or open source leakage that leads to assets being compromised.
- internal/external entanglements involving the IA’s in play.
- probing by and/or adverse impact from business intelligence, competitive advantage adversaries, or economic espionage.
It’s important to recognize as well, that notice of a thorough (pre-post) intangible asset specific due diligence…conveys an important message to actual or prospective (transaction) targets, that is…
- the due diligence will zero in on their centers of value, competitiveness, revenue generation capacity, brand, and sustainability, etc.,
- while minimizing non-essential – (irrelevant) information drawn from conventional and gratuitous ‘check-the-box’ actions which seldom provide the level of specificity that’s essential for today for IA intensive and dependent businesses and transactions.
- IA monitoring is critical to lucrative, competitive, and sustainable outcomes. That’s because IA value and competitive advantage fluctuation, erosion, and/or undermining can commence at ‘keystroke speeds’.
Michael D. Moberly July 28, 2017 [email protected], the ‘Business Intangible Asset Blog’ since May 2006, 650+ published blog posts, read in 137+ countries, ‘where one’s attention span, businesses intangible assets, and solutions converge’!
Readers are invited to explore other published blog posts, videos, books, and position papers at https://kpstrat.com/blog
