Conducting due diligence on whatever intangible assets are in play…is an essential component to achieving a successful and sustainable outcome, i.e., revenue generation, risk mitigation, etc., in buy, sell, transfer, merger, acquisition transactions.
The reason intangible asset (pre-post transaction) due diligence is necessary today, is because it’s an…
- economic fact that 80+% of a company’s, and by extension, business transaction’s, value, projected sources of revenue, and future wealth creation lie in – emerge directly from intangible assets, i.e., their intellectual properties, brand, reputation, etc., each being precipitated by – embedded with (proprietary) intellectual, structural, and relationship capital. https://kpstrat.com/wp-admin/post.php?post=221
Business leadership who may still hold some doubt about the veracity and consistency of this economic fact…I encourage a prudent (fiduciary) strategy to employ, which is, decision makers and transaction management teams (a.) negotiate (transaction) covenants in advance, to (b.) permit conducting pre and post due diligence specific to the intangible assets in play, and (c.) utilize the due diligence findings to modify relevant (contractual) aspects to a pending transaction when – if necessary.
Of course, initial responsibilities of those conducting intangible asset (pre – post transaction) due diligence…is to identify, unravel, and assess the target’s intangibles and understand how or if they are being applied – exploited effectively and profitably. https://kpstrat.com/wp-admin/post.php?post=5947
The rationale for negotiating intangible asset due diligence covenants in business transactions is to incorporate – leverage the findings in any further negotiations…but, intangible asset due diligence is not only insightful when-if there are suspicions and/or observations that key intangible assets may go away, i.e., be undermined, lose value and competitive advantage, etc. When targeting companies – investment suitors conduct pre – post transaction due diligence on a targets intangibles it sends a clear and strong message of the gravity of the action, i.e., it is – will not merely be a generically executed confirmation of a transaction’s desired – expected outcome. https://kpstrat.com/wp-admin/post.php?post=1621
The purpose – objective of transaction covenants as I propose here…i.e., the intangible asset due diligence conducted in pre and post transaction contexts, are to provide decision makers with valuable strategic insights and perspectives about…
- the projected status of the about-to-be purchased-acquired assets.
- their foundational (underlying) intellectual, structural, and relationship capital.
- mitigating – minimizing transaction (outcome) risks.
Each intangible asset due diligence (pre and post transaction) is obliged to ‘stress test’ the intangibles in play…
1. relative to their fragility, stability, defensibility, competitiveness, value, and potential for sustained revenue generation.
2. as preludes to assessing – mitigating horizontal challenges and risks, which, if – when they materialize may inhibit – prohibit a company from maximizing and extracting as much value and competitive advantage as projected from the assets.
3. as prelude to forming actionable recommendations, when-where feasible, regarding any necessary safeguards and/or asset value preservation measures prudent to be in place prior to consummating a transaction.
…in which there is an operational culture of intangible asset intensity and dependency
The primary benefit to conducting intangible asset due diligence (pre – post transaction) are to… execute more secure, profitable, and sustainable transactions, not impede them! This can be achieved by providing management teams – decision makers with clear and timely insights from which to…
1. identify and assess any embedded – under-the-radar risks, vulnerabilities, and operational complexities that may impair and/or entangle intangibles that may be preludes to very costly, transaction stifling, and time consuming (legal) disputes and challenges.
2. identify and unravel a target’s internal centers – chains – clusters of intangibles and assess the adequacy of safeguards, risk mitigation, and value preservation measures.
3. bring operational – economic clarity to a target’s intangible assets and their respective interface with specific intellectual, structural, and relationship capital.
4. ensure value – competitive advantage safeguards and preservation measures are effectively aligned with each transactions’ near term objectives, strategic business plan, projected returns, exit strategy, and life – value – functionality cycle of the assets in play. https://kpstrat.com/wp-admin/post.php?post=285
Readers are invited to explore other papers, books, blog posts I have produced – published at https://kpstrat.com/books