Intangible Asset Due Diligence

By Michael D. Moberly

Conducting intangible asset due diligence is essential because today, as much as 80+% of most company’s value, sources of revenue, and competitive advantages, etc., lie in – evolve directly from intangible assets. That’s a globally universal economic fact! Too, the various transactions a company routinely engages, one can be assured, intangible assets will inevitably be in play and therefore their status can affect any transaction outcome.

Intangible asset due diligence is not an exercise that is useful only after a company suspects or experiences the materialization of a risk, i.e., misappropriation, infringement, etc., or is notified they are a defendant to a lawsuit!

Equally important, intangible asset due diligence, given the complexities involved, should not be a mere confirmatory review that certain intangibles are present using a generic, one-size-fits-all checklist.

Intangible asset due diligence is obliged to provide decision makers with…

• actionable recommendations for making sound business decisions about preserving, managing, positioning, and extracting value from the assets in play.
• an objective sense of the targeted assets’ fragility, stability, defensibility, and value insofar as projections of deliverable revenue and competitive advantages.

When conducting intangible asset due diligence, a first responsibility is to understand the target company by becoming familiar with its intangibles, i.e., the underlying intellectual, structural, and relationship capital particularly.

When should companies conduct their intangible asset due diligence? In most circumstances, its best to engage in preliminary due diligence should be conducted as a prelude to any transaction in which specific, i.e., the sought after intangibles will be in play. Thus, intangible asset due diligence should be analogous to asset monitoring and conducted in both pre and post transaction contexts.

How will intangible asset due diligence benefit your company? In any business transaction in which intangible assets will be integral to the outcome, due diligence can enable and facilitate a more secure and profitable transaction (not impede it) by providing decision makers with clear and timely insights, i.e.,

• Identifying embedded – under-the-radar risks, vulnerabilities, and operational complexities that contribute to impairing or entangling knowledge-based assets and serve as preludes to costly and time consuming disputes and challenges…
• Identifying and unraveling internal centers, chains, or clusters of intangibles and competitive advantages and assess the adequacy of safeguards.
• Bringing operational – economic clarity to the target company’s intangible assets, intellectual property, know how, brand, and competitive advantages, etc.
• Identifying efficient – effective protection – value preservation measures that are aligned with a transactions’ objective and the company’s strategic business plan, i.e., projected returns, exit strategy, as well as the life – value cycle of the assets in play.

[This post originally appeared at the Business IP and Intangible Asset Blog.]