Whenever, however, or wherever a businesses intangible assets are, or will be in play, there is potential for risk to materialize, (i.e.)…
- a merger, acquisition, venture capital pitches, market entry planning, litigation support, university-corporate research alliances, and organizational resilience planning, business transaction, etc.,
- because materialized risks can adversely affect the stability, fragility, longevity, materiality, proprietary status, and the…
- life-value-functionality cycles of certain, perhaps key intangible assets in significant ways.
Therefore, conducting intangible asset specific due diligence is no longer merely a prudent option, instead, it’s a fiduciary responsibility…the purpose (intent and objectives) for executing pre – post transaction (intangible asset specific) due diligence include…
1...it is a globally universal – irreversible economic fact that 80+% of most company’s value, sources of revenue, competitiveness, efficiencies, growth and sustainability lie in – emerge directly from intangible assets.
2. When companies, particularly ‘IA intensive and dependent’ ones engage in any type of transaction, it is highly like their IA’s will be in play.
3. A key objective of conducting both pre, and post IA due diligence is to ensure the value, revenue generation capabilities, competitive advantages, and reputation, etc., produced by the IA’s in play, are, and will remain fully intact and the risks will be known and satisfactorily mitigated on both (pre, and post) sides of the transaction.
So, in circumstances in which…
• there has been no due diligence conducted specific to the key IA’s in
• the due diligence conducted was absent specificity, i.e., was generic, ‘one-size-fits-all’ and resembled a conventional ‘check-the-box’ (due diligence) template more relevant to physical-tangible assets than IA’s, or
• due diligence was conducted by personnel operationally unfamiliar with, IA’s and their contributory role(s) to retaining transaction value, revenue generation, competitive advantage, and reputation, etc., and risks specific to IA’s that will, when they materialize, adversely affect (undermine) IA’s contributory value, competitiveness,
transaction sustainability, and likely escalate reputation risk.
In circumstances when one, all, or a variation of the above occurs, the risk portrait for both the transaction and the IA’s in play will very likely shift from the probable to the inevitable, and that’s a ‘bad thing’ for investors and transaction sustainability.
Too, circumstances such as this, make it all-the-more essential for companies to have expertise at the ready to conduct effective and IA specific pre-post transaction due diligence. And, also, recognize how to leverage – exploit pertinent revelations (emerging from the due diligence) to…
• provide timely – objective insight to principals, i.e., regarding the status, stability, fragility, defensibility, and sustainability of key IA’s in play.
• serve as legitimate entrée for re-negotiating transaction terms, i.e.,increase probability transaction party will be positioned to hand-off more valuable, uncontested, and competitive IA’s, reduce probability of incurring time consuming, costly, and momentum stifling disputes that 2.
2…buyers of intangible assets are obliged to recognize they are variously fragile and vulnerable to risk which, among other things, should they materialize, can undermine – quickly erode the assets key contributory role, value, competitive advantages, and efficiencies, all of which a buyer may naïvely anticipate will naturally accrue without the necessary pre – post due diligence.
3…elevate principle’s (buyers) confidence in their invest-don’t invest, buy-don’t buy decisions.
4…ensure legitimacy and authenticity as to the origins, develoment, ownership, contributory role – value, and competitive advantages of the intangible assets in play.
5…identify (assess) if – when any key intangible assets are in play and have been targeted by economic – competitive advantage adversaries to determine if any asset hemorrhaging has occurred – commenced as a result.
Today, the probability that a buyer’s calculated – anticipated projections of a…business transactions’ outcomes will materialize wholly absent risk to the intangible assets in play conveys, in my judgement, more trust than perhaps what is warranted relative to present day globally aggressively, predatorial, and winner-take-all business transaction environment.
Now, in many instances, achieving a favorable (lucrative) transaction outcome…in which key intangible assets will inevitably be in play, that outcome will largely be dependent on the sophistication of pre-post transaction due diligence. This means due diligence teams are obliged to acquire operational familiarity with not only the key intangible assets in play, but also the attendant risks, i.e., existing, near term, and horizonal.
Therefore, to elevate the probability that a buyers…initial projections (to a transaction’s outcome) will materialize as intended, the scope of intangible asset pre-post transaction due diligence should include, at minimum,
- identifying, unraveling, and assessing asset fragility and transferability.
- mitigating risks, and
- safeguarding – preserving the key intangible assets in play in terms of safeguarding their contributory role, value, efficiencies, and competitive advantages.
To be respectfully redundant…in a substantial percentage of even routine business operations and/or transactions, intangible assets can become entangled – ensnared in various risks that adversely exploit their fragility and vulnerability to…
- diminution in contributory role, value, revenue generation capability, and sustainability of long established competitive advantages,
- misappropriation and infringement.
It is for good reason then, every businesses ability to monitor control, use, ownership, and value of key intangible assets…whenever, however, and wherever they are in play, i.e., a transaction, the prudent will ensure pre and post transaction due diligence is executed as a means to sustain any projected lucrative outcome.
It’s certainly no secret that for a significant percentage of intangible asset intensive – dependent business transactions…the negotiations can far from cordial, i.e., aggressively competitive, predatorial, and reflect winner-take-all outcomes.
Under these circumstances, dismissing and/or relegating business transaction realities regarding the intangible assets in play…to the un-initiated, unaware, or unfamiliar can be fraught with risk. Especially, when intangible assets will inevitably be dynamic contributors to achieving lucrative outcomes.
I have had the privilege…over the years, to engage countless business decision makers and strategists across industry sectors. In private conversation, all, but a few, of these leaders dispute my characterizations and advocacy for intangible assets.
Assuming these conversations are representative…which I do, it would be prudent to also assume that a businesses intangible assets will be integral to every business transaction considered, negotiated, and executed.
So, conducting pre-post (transaction) due diligence to…sustain control, use, and ownership of key – sought after intangible assets, and their contributory role, value, and competitive advantages are paramount to the outcome.
Michael D. Moberly St. Louis March 19, 2019 [email protected] the ‘Business Intangible Asset Blog’ since May 2006, 650+ published posts, read in 137 countries, ‘where one’s attention span, businesses intangible assets, and solutions converge’!
(This post was initially published here February 23, 2017. The post underwent significant revisions at my hand and is now re-published on April 26, 2019.)
Readers are invited to explore more blog posts, position papers, video, and books at https://kpstrat.com/blog
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