Intangible Asset Due Diligence In Mergers & Acquisitions

Michael D. Moberly   January 5, 2009

When negotiating – executing any business transaction, its increasingly likely intangible assets and intellectual property (IP) will be in play, if not, they should be!

Merger and acquision due diligence that focuses specifically on intangible assets and IP is particularly relevant today because 65+% of M&A value – pricing are embedded in intangible assets and IP!  Presumably, its in the interest of the ‘acquiring’ party’s due diligence to fully assess the status, stability, fragility, and defensibility of those assets to determine if control, use, ownership, and value can be sustained (practically and legally) pre and post transaction.

In addition, its equally prudent for M&A due diligence teams to examine the assets to:

1. identify and assess the existance of any ‘me too’ aspects in which the value of the assets will diffuse or erode due to (a.) the breadth of the current field of those assets’ underlying technologies, or (b.) being readily superseded (undermined) if competitors – economic adversaries were able to acquire – launch new technologies that would render those assets’ commerically obsolete, i.e., significantly shorten their projected life-value-functional cycle…

2. determine if (a.) any component will be subject to export, and, if so, (b.) proper/current legal protections are in place in the U.S. and internationally, otherwise, additional legal – regulatory compliance events could be triggered along with significant costs attached…

3. fully unravel – verify their origins and identify/assess if any (problematic) legal restrictions and/or liabilities exist that could inhibit their (a.) complete and unrestricted utilization and/or commercialization, (b.) undemine its value, (c.) erode its competitive advantages and market position, or (d.) add substantial (post transaction) costs for litigation and/or remedies (fixes)…

4.  determine if significant asset (IP) infringement, counterfeiting, piracy, misappropriation, theft, and/or compromises (above normal business risk thresholds) have – are occurring either before or as a reaction to the M&A transaction…

5. determine if key intellectual-human capital ‘drivers’ (i.e., personnel) are leaving the company in advance of the M&A (e.g., going to competitors, etc.) that could adversely impact projections/assessments for near term viability of the transaction and strategic sustainability, efficiencies, value, defensibility, and revenue generating capability of the assets, post transaction…    

                             (Mr. Moberly adapted this post from the excellent work of L. Burke Files.)



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