Intangible Asset Hemorrhaging: Deal Expediency and Short Term Thinking

Michael D. Moberly   April 3, 2012

It’s important that those responsible for the management, stewardship, and oversight of a company’s intangible assets recognize that financial – competitive advantage hemorrhaging of those assets can commence before the ink dries on a transaction agreement.

The kind of (intangible) asset hemorrhaging I’m referring to is that which is attributed to theft, misappropriation, infringement, counterfeiting and piracy, etc., anyone of which can undermine the assets’ contributory value and competitive advantages.

In todays’ globally competitive, predatorial, and winner-take-all business transaction arena, this sort of (intangible) asset hemorrhaging is facilitated by two general attitudes, i.e., an

  • unnecessarily high sense of urgency relative attached to deal execution.  Urgency and speed often mutate as the dominant driver of a transaction which in turn can constrict – impede the time allotted for and the thoroughness of the due diligence, especially with respect to the intangible assets in play.
  • assumption that deals-transactions can be consummated and revenue streams commence before the (intangible) assets in play will fall prey to theft, misappropriation, or simply walk out the front door as intellectual capital (know how) with departing employees.

Thorough (intangible) asset due diligence if obviously crucial to transaction success and profitability today, particularly when 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability evolve directly from intangibles.  This is why it’s essential for asset buyers in a transaction ‘get out front’ by (a.) acknowledging, and (b.) preventing and/or mitigating those adverse attitudes.

If, on the other hand, a company’s decision makers and/or counsel conveyed dismissiveness about the potentially adverse outcomes such attitudes would produce, presumably they would have to know precisely:..

  • the opportune time when acts of (intangible asset) misappropriation,  theft, infringement, misappropriation will occur, and,
  • the time required for an adversary to integrate the misappropriated – stolen (intangible) assets into their products and/or services as enhancements, efficiencies, and competitive advantages.

The virtual head start and competitive advantages the victim company presumably had achieved would begin to narrow and/or be undermined quite rapidly, along with its reputation, image, and goodwill   Exacerbating such increasingly probable events is the rarity that an (intangible) asset buyer will have the necessary asset) value – competitive advantage safeguards and  monitoring capabilities in place to alert would be buyers, in sufficient time to stabilize – recover the compromised assets before substantial and many times irrevocable asset hemorrhaging commences.

An adversary’s (market space, competitive advantage) ‘head start’ following their illicit acquisition – use of the intangible assets remains subjective, but it’s prudent to measure it in hours and days, not weeks, months, or quarters. Unfortunately, there are numerous actual and would-be (intangible) asset buyers that I would characterize as being ‘permissively neglectful’ about managing, safeguarding, and about-to-be purchased intangible assets by erroneously  assuming:

  • any economic and/or competitive advantages an adversary may glean from the (intangible) assets they compromise – acquire will be short-lived and/or outpaced by rapid changes in consumer – market demands which only the legitimate originator will be able to deliver, and,
  • intangible assets are (readily) renewable resources.

Respecting the narrowness of (profit) margins today, I encourage management teams and counsel to re-consider both assumptions!

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or [email protected]




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