Michael D. Moberly April 28, 2010
Intangible assets are increasingly valuable and exploitable commodities that allow company management teams and boards to consider and pursue an ever widening range of business transactions in which intangibles will be part of the deal, that is, they can be bought, sold, transferred, traded, assimilated, or licensed.
Business transaction management teams have those same responsibilities, only they’re elevated somewhat, due to the expectation that in most any transaction, one or both parties’ intangible assets will be in play, that is, they will be integral factors when negotiating and pricing a deal. That’s because, 65+% of most company’s value and sources of revenue today lie in – evolve directly from intangible assets!
However, absent effective guidance in the development of intangible assets, most would score high on the transferrability, replication, and/or imitation scale. This makes the the assets particularly vulnerable to devaluation, or hemorrhaging, as I refer to it, that is, they become impaired in some manner relative to their ability to produce/deliver the projected value, competitive advantages, and revenue streams after the deal has been closed.
For transaction management teams, it’s absolutely essential that they be alert to the potential for, if not the probability that, some level of asset hemorrhaging can occur in both pre and post transaction contexts. In some instances, asset hemorrhaging can literally commence before the ink dries on a transaction contract.
A key starting point to prevent and/or mitigate any asset hemorrhaging from occurring, is to avoid permitting an over-heated sense of urgency and speed to affect the transaction management teams’ responsibilities. When management teams view a transaction primarily through a lens of urgency and speed, a frequent consequence is that the critical due diligence and asset assessments become hurried and templated and not as thorough and specific, nor examined in both pre and post transaction contexts, as they should. Of course, in today’s hyper-competitive global business environment, where its likely there will be multiple and simultaneous suitors to a transaction, a sense of urgency and speed are almost endemic!
Transaction management teams are obliged then, to frame – structure their role, particularly the duties related to the due diligence and assessment of intangible assets, in a manner that:
1. Recognizes the ability to obtain (retain) full control, use, ownership, and value of those assets is essential to negotiating a profitable and sustainable transaction outcome.
2. Secures approval to integrate asset protection and value and materiality monitoring measures at the earliest stages, as well as, throughout the transaction negotiation process to reduce the probability of and be promptly alerted to actions that can (a.) undermine asset value, competitive advantages and the assets’ ability to continue to produce revenue, and/or (b.) trigger costly and time consuming legal disputes and challenges that can disrupt the momentum of and/or jeopardize an otherwise viable transaction.
While the goal of a transaction management team remains the same; to facilitate stronger, more secure, and profitable transactions, its now prudent to include an intangible asset specialist on the team, who can, among other things, identify, unravel, and assess the value, risks, defensibility, and sustainability of the intangible assets that are in play.
I welcome and look forward to receiving your thoughts and comments.