Successful M&A Outcomes, Role of Intangible Assets

There have been countless articles, books, and essays written-published on every conceivable aspect to M&A’s (mergers and acquisitions)….strangely, I find most overlook, or omit the contributory role and value of intangible assets in play and their safeguards relative to the outcome.

Strange because, it is an irreversible economic fact…business operation reality today, as it has been for the past 20+ years, that…

  • 80+% of most company’s value, sources of revenue, future wealth creation,  competitiveness and sustainability lie in – emerge directly from non-physical intangible assets.

So, would it not be prudent for parties to an M&A…to seek counsel from sources well versed in intangible asset matters, particularly (a.) pre – post transaction (intangible asset) due diligence, and (b.) sustaining control, use, ownership, value and mitigating risks to the intangible assets in play?

After all, it’s the intangible assets which are often the catalyst and incentive…underlying many M&A proposals and their being fully functional and intact is critical to M&A outcomes.

Starting in the mid-to-late 1990’s, I had the good fortune, and perhaps good sense, to…read-study early products (chapters) of a multi-year project undertaken by The Brookings Institution titled ‘Understanding Intangible Sources of Value’. The principle investigators-authors of the project, several of whom I had an acquaintanceship, I sought out for further discussion for clarity and insight.

To be sure, these individuals were a strong troupe of forward looking – forward thinking professionals and practitioners…

  • however, the attention paid to the contributory role and value of intangible assets to business operability is largely about…their designation, accounting, valuation, and reporting methodologies vs. their actual contributory role and value. 
  • even though intangible asset intensity and dependence in business operation is rapidly becoming the norm, not the exception.
  • importantly then, conventional financial statements and balance sheets largely exclude or, at the very least, minimize the contributory role and value of intangible assets,
    • leaving portraits of a company’s financial wealth, health, potential, and competitive standing incomplete, at best.

In the M&A arena…it’s important, more so today than perhaps ever before, to recognize that merely because…

  • an M&A has been proposed, appears promising, and has progressed to a conventional due diligence stage,
  • does not constitute assurance that any of the projected-anticipated value, synergies, efficiencies, scalability, and competitive advantages produced by specific, and presumably sought after intangible assets are,
  • fully capturable, will materialize as desired – projected, or be sustainable.

Therefore, in my judgement, intangible asset specific and pre – post transaction due diligence is a prudent and necessary component to deal consummation…

  • to reasonably assure projections and outcomes will materialize as intended,
  • the due diligence should be sufficiently sophisticated to recognize each of the intangible assets in play,
  • this includes identifying, unraveling, and assessing asset fragility, vulnerability, sustainability, and transferability in both pre, and post (monitorable) contexts.

M&A transaction negotiations today are aggressive, competitive, predatorial…and generally manifest as winner-take-all outcomes. In these circumstances, dismissing and/or relegating the posture and standing of key intangible assets to mere ‘hope and trust’ is fiduciarily suspect, at best.

I have had the privilege to engage many business strategists and decision makers in private conversation…but, have no recollections of anyone disputing or wholly dismissing my advocacy for intangible asset (pre – post) due diligence for business transactions.

Assuming my (these) favorable discussions are emblematic of a larger picture…it would seem prudent that intangible assets would be duly considered in every business transaction process, wouldn’t you!

Note: This post, in part, was inspired by Generational Equity piece titled ‘Precision Sourcing’.

Michael D. Moberly June 8, 2017 St. Louis [email protected], the ‘Business Intangible Asset Blog’ since May 2006, 650+ blog posts published, ‘where one’s attention span, intangible assets, and solutions converge’!

Readers are invited to explore other published blog posts, video, and position papers at https://kpstrat.com/blog

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