A strong rationale for conducting pre-post transaction due diligence for key intangible assets in play…emanates in the economic fact that today, 80+% of most company’s value, sources of revenue, competitiveness, sustainability, and future wealth creation, and by extension, a transaction, lie in – emerge directly from intangible assets.
Thorough intangible asset assessments and pre-post (transaction) due diligence…are important to routine company-business operations under consideration and/or undertaken because they (an assessment, due diligence action) serve as means to identify under-utilized intangible assets, strategies to build – sustain asset value, sources of revenue, competitive advantages, and mitigate asset risks.
It’s important for boards, c-suites, and management teams to…recognize that assessments and due diligence (of their intangible assets) are not exercises applicable-useful only after they suspect or experience a (business) problem, e.g., infringement, misappropriation, disappointing transaction, insider theft, an unprofitable venture, or cited in a civil action.
Similarly, it’s essential (intangible asset) assessments – due diligence not be construed…as mere confirmatory reviews and thus executed using generic (one-size-fits-all) checklists. Instead, intangible asset assessments and due diligence should be company – transaction specific with an obligation to provide the relevant parties with…
- an objective sense of the assets’ fragility, stability, defensibility, contributory role, value, and current state.
- actionable recommendations (strategies) for making sound – prudent business decisions.
- which encompass safeguarding, preserving, managing, and extracting value from the assets individually, collectively, and/or collaboratively.
A first responsibility…when conducting intangible asset assessments and due diligence, is to understand the distinctive functionalities – cultures within a client’s company-organization. This occurs by securing operational familiarity with its intangibles, especially intellectual, structural, and relationship capital and their (company-client specific) variants.
What circumstances should companies conduct intangible asset assessments and due diligence…at minimum, (intangible asset specific) due diligence should be considered a prelude to or coincide with any significant transaction or new initiative in which intangible assets are – will be in play and potentially at risk to…
- value erosion.
- competitive advantage undermining.
- infringement, misappropriation, theft.
- intellectual-structural-relation capital ‘walking out the front door’!
How does intangible asset due diligence (assessment) benefit a company…in the case of business transactions in which intangible assets are in play and at risk (which, in most instances, they are) an assessment and due diligence will…
- enable and facilitate (contribute to) a more secure and profitable transaction (not impede it).
- by providing management teams with economic, operational, and contributory role and value clarity to each (relevant) intangible asset.
1. by identifying embedded – under-the-radar risks, vulnerabilities, and operational complexities that may impair or entangle knowledge-based assets and thus serve as preludes to costly and time-consuming disputes and challenges, and
2.by unraveling centers – chains – clusters (internally) of assets and competitive advantages and assess the adequacy of safeguards and contributions to company value, sources of revenue, sustainability, and competitiveness.
3. efficient – effective safeguards and value preservation measures that are specifically aligned with a transactions’ objectives and the organizations’ strategic business plan, i.e., projected returns, exit strategy, and life – value – functionality cycle of the assets in play.
- …the person who elects not to read, has little or no advantage over the person who cannot read! (Attributed to Samuel Clemens, adapted by Michael D. Moberly.)
Michael D. Moberly October 27, 2017 St. Louis [email protected] ‘The Business Intangible Asset Blog’ since May 2006 ‘where one’s attention span, intangible assets, and solutions converge’!
Readers are invited to explore other blog posts, papers, and books I have published at https://kpstrat.com/blog