Michael D. Moberly January 31, 2012
As conveyed many times before, I still say with confidence; in most business transactions today, intangible assets not only will, but should be integral to consummating a deal. That’s particularly true for acquisition targets rich in knowhow and intellectual capital as sources of value, revenue, and competitive advantage.
For acquisition management and due diligence teams, the prospect of acquiring (intangible) assets whose contributory value:
- is complimentary, readily transferable and exploitable, and
- can quickly be converted/applied to advance a near/long term business strategy
…should be recognized at the outset as essential elements to achieving the projected (anticipated) benefits of an acquisition.
The role of intangibles to a successful acquisition is especially relevant in light of the globally universal (economic) fact that 65+% of most company’s value, sources of revenue, building blocks for growth and sustainability today evolve directly from intangible assets! Acquisition management and due diligence teams must recognize that a successful acquisition does end at the point in which a target’s assets have been ‘legally’ acquired.
It’s also about ensuring the (intangible) assets are effectively integrated and utilized by an acquiring firm. This requires an in-depth understanding of intangible assets coupled with and processes which are quite different from the acquisition of conventional tangible (physical) assets in which usage is a more readily understood. Intangibles, it must be understood, lack physicality. They are embedded in a target’s intellectual, relationship, and structural capital. Too, intangibles can be fragile, somewhat volatile, and certainly vulnerable to a host of risks in which their contributory value erodes and competitive advantages are undermined.
Acquisition due diligence and management should therefore, be structured to include pre and post transaction components, e.g.
First – unravel and assess each of the key assets’ status, i.e., stability, fragility, defensibility, and transferability
Second – continuously monitor those key assets value and materiality throughout the acquisition process
Third – put in place measures to ensure the acquiring firm can sustain un-challenged control, use, and ownership of the assets.
For any acquisition or business transaction in which the pre and post perspectives are omitted or poorly executed, the likelihood that costly and momentum stifling (post deal) surprises will arise have, in my view, become not mere probabilities, rather inevitabilities!
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