Unwarranted Sense Of Urgency Should Not Dominate Business Transaction Negotiations…

Michael D. Moberly    January 18, 2012

Intangible assets are increasingly valuable commodities that can be leveraged to allow management teams and boards to pursue a broader range of business transactions and/or alliances. Too, intangibles will almost certainly be integral to negotiating a deal in terms of pricing and the fact they can be bought, sold, transferred, traded, assimilated, or licensed.

Why?  Because 65+% of most company’s value, sources of revenue, and building blocks for growth lie in – evolve directly from intangible assets! 

Experience tells us that if there was a scale for transferability, replication, and/or imitation of intangible assets they would surely score high on all counts.  This is, intangible assets, in most instances are vulnerable to value erosion, undermining and competitive advantage hemorrhaging. In other words, they can become impaired in some manner relative to their ability to produce/- deliver the projected value, competitive advantages, and revenue streams after the deal has been closed.

This makes it all-the-more essential for transaction management teams to be alert to the potential for, if not the probability that, at some level, asset hemorrhaging will (can) occur in either pre or post transaction contexts.  In some instances, asset hemorrhaging can literally commence before the ink dries on a transaction contract.

A key starting point to prevent or at least mitigate any such asset hemorrhaging is to avoid permitting an unwarranted sense of urgency and/or speed to affect the thoroughness of the transaction management teams’ responsibilities.  When management teams view a transaction primarily through a lens of urgency and speed, a frequent consequence is that critical due diligence, particularly intangible asset assessments, become hurried and follow an ill-conceived or old ‘check the box’ approach that does not consider ways in which the assets can be adversely affected in both pre and post transaction contexts, as they should.  

Of course, in today’s hyper-competitive and predatorial global business transaction environment, it is likely there will be multiple and simultaneous suitors or players to a transaction which often drives, unduly in many instances, a sense of urgency and speed to consummating the deal.

Today, transaction management teams are obliged, in my view, to structure their role, particularly how due diligence and intangible asset assessments are conducted in a manner that:

  • recognizes the necessity to retain control, use, ownership, and monitor the value and materiality of the assets as being essential to negotiating a profitable and sustainable transaction outcome
  • secures approval to integrate intangible asset protection and monitoring commencing at the earliest stage and throughout the transaction negotiation process
  • reduces the probability of and be promptly alerted to internal-external acts or materialization of risks that can

             – undermine asset value, competitive advantages and the assets’ ability to continue to produce revenue

             – trigger costly and time consuming legal disputes and challenges that can disrupt the momentum of and/or jeopardize an otherwise viable transaction.  

While the goal of a transaction management team remains the same; to facilitate stronger, more secure, and profitable transactions, it’s now prudent to include an intangible asset specialist on the team, who can, among other things, identify, unravel, and assess the value, risks, defensibility, and sustainability of the intangible assets that are actually in play.

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