Intangible Assets: Transaction Impact Analysis

Michael D. Moberly   August 9, 2012

As stated in this blog on numerous occasions since its inception in mid-2008; it’s crucial for business decision makers to recognize that in a vast majority of transactions they will initiate or become engaged, correctly identifying and assessing intangible assets plays an increasingly significant role in achieving a desired and sustainable outcome!

The reason of course, is that steadily rising percentages (65+%) of most transactions’ value resides in intangible assets.  So, if a transaction management team overlooks intangible assets, it’s tantamount to excluding how/where value is created, revenue is generated, and strategic planning is executed.

This makes it all-the-more-important, perhaps rising to a fiduciary responsibility, at the decision maker level, to determine if a transaction management team is incorporating intangible assets in their task.  If so, are intangible assets being addressed in a due diligence, inventory, auditory, or valuation context?   If a transaction management team is doing neither, it’s fair to say it’s time to elevate their operational familiarity and understanding of intangible assets.

As readers know, there is an abundance of research that consistently paints a convincing picture that if and/or when a merger, acquisition, or other type of transaction ‘goes south’, evidence of impending problems and challenges will surface quite early and will likely stem from one or more intangible assets.

One technique to remedy, or at least mitigate this, is for decision makers to receive an advance ‘heads up’ from their transaction management team by ensuring an ‘transaction impact analysis’ is part of their task.  As the term implies, an asset impact analysis can provide decision makers with a more definitive picture of potential outcomes, should a risk(s) materialize and adversely affect one or more of the key (intangible) assets.  This can be achieved…

  • collectively, i.e., that reflects the inter-relatedness of intangible assets’ contributory value and associated risks.
  • individually, i.e., if a key asset is identified as being impaired in some manner, or is found to be already misappropriated or infringed.
  • by assessing the probability that particular risks will materialize to adversely affect the projected economics, competitive advantages, and/or synergies of a transaction with emphasis on mitigation and containment.
  • by assessing the resiliency and sustainability of key intangible assets

The rationale for incorporating an transaction impact analysis is for decision makers to anticipate circumstances – scenarios that if a risk has or will materialize to the point it impairs or otherwise adversely affects key (intangible) assets.  I tend to advocate asset impact analysis’ be initially focused on what I believe to be the three, most challenging intangible assets to sustain – preserve their contributory value, i.e., intellectual, relationship, and structural capital.

Too, a transaction impact analysis can reveal other cautionary circumstances/scenarios while retaining the option to proceed with a (a.) plan for risk mitigation, or (b.) re-negotiate the deals terms in light of the risk(s) and/or asset impairment(s). The objective essentially remains the same, that is to facilitate a more secure and profitable transaction going forward, not impede it!

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