Michael D. Moberly December 29, 2009
In most instances today, when owners/founders of SME’s (small, medium enterprises) sell and/or transfer their business, the intangible assets they have developed and/or acquired are literally embedded in – integral to their company’s base of value, sources of revenue, foundations for future wealth, and sustainability. But, anecdotally speaking, those assets routinely go unrecognized or poorly addressed – factored in exit and/or transfer transactions.
For parties to buy, sell, transfer and/or M&A transactions, one of the initial, and ultimately perhaps, one of the most important issues to be addressed relative to laying foundations for ensuring projected-anticipated profitability (success) of a transaction, is executing an effective transition-merger of the intangibles to the new owner relative to their integration, useability, transferability, and contributory (added) value, etc. The objective of course, is that the intangibles’ post transaction performance and contributions will exceed, or at minimum, be equal to the performance-value their previous owner seemingly gained. If not, why buy – invest in them?
For those who may be inclined to characterize this consideration as being insignificant to a transaction’s strategic success, are respectfully advised to reflect upon the (global) economic fact – business reality that 65+% of most company’s value, sources of revenue, sustainability, and foundations for future wealth creation lie in – are directly related to intangible assets. So, in a vast majority of transactions, intangible assets are in play – part of the deal. Therefore, they’re integral to transaction equations!
So, what should (can) buyers do? First, and foremost, ensure their due diligence process includes an intangible asset specialist who possesses the skills sets and experience to actually…
1. identify clusters-pockets-chains of of intangible assets, unravel their origins, and determine (track) their respective (current) contributory value to the sellers’ company.
2. assess the assets’ status and transferrability (useability), i.e., determine if the assets’ control, use, ownership, contributory value, and materiality can be sustained and/or enhanced, post transfer.
While the (largely subjective) dollar value assigned to intangibles in transactions is obviously relevant and should be factored, I find it consistently less (strategically) meaningful-relevant if the above points are overlooked, dismissed, or neglected.