Due Diligence 2008 – It’s All About Control, Use, Ownership and Value of Intangible Assets…

Michael D. Moberly   October 4, 2008

Intangible assets (intellectual property, proprietary know how, intellectual capital, etc.) can advance an organization economically and competitively, only so long as their control, use, ownership, and value are consistently monitored and sustained!

It’s important to recognize, once again, that percentages of company value, revenue sources, sustainability, and future wealth creation attributed directly to intangible assets is steadily rising in today’s largely knowledge-based – intangible asset economy.  The relevance and value held within intangible assets, like other assets, can fluctuate.  This requires projections (prognostications) about asset value and measures to monitor (assess) asset value be encompassing to fully reflect and capture the life and functionality cycles of the assets in play – part of a deal.

Similarly, a company’s portfolio of proprietary (sensitive) information and trade secrets changes – evolves over time as do definitions (of what information is considered sensitive or constitutes a trade secret) often become outdated and sometimes bear little or no relationship to the types of information a company produced yesterday or tomorrow. (Concept attributed to R. Mark Halligan) The real effectiveness of (information security, classification) policies and procedures diminishes rapidly if such changes, like those characterized above, go un-recognized, un-monitored, and un-reported.

Some information becomes obsolete and no longer has commercial value to an organization, while new information is constantly being produced (generated) and can rapidly become extremely valuable, but, again, if un-recognized as such, its vulnerability to compromise or entering the public domain rise, and, once there, value may quickly go to zero.  Therefore, recognizing that the production of information assets is a dynamic, not a static process is an important and necessary first step toward ensuring business transactions, in which intangible assets and/or IP are in playpart of the deal, are as successful as the parties’ intended.

Today, business transaction environments are extraordinarily competitive, predatorial, globally intertwined, and ‘winner-take-all’ oriented, for which there is no single, stand alone platform that is adequate to fully address the intangibles and IP that are inevitably in play, absent a thorough appreciation that the ‘end game’ is to sustain control, use, ownership, and value of those assets in both pre and post transaction contexts. 

In other words, when engaging in any type of transaction in which intangibles and IP are being bought, sold, transferred, or licensed, its essential to ensure that (1.) due diligence is as good on the front end (pre transaction) as it is on the back end (post transaction), (2.) due diligence does not succumb to faux sense of urgency, i.e., an entire deal must be fully vetted in 48 hours, and (3.) conventional templates for conducting due diligence are challenged, that is, when 75+% of a transactions’ value (success, profitability, etc.) lie in intangible assets and presumably the ability of the parties’ to have control, use, ownership, and value of those assets, thorough on-site interviews and assessments become critical necessities with little or no room for negotiation.



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