Intellectual Asset M&A Due Diligence and Risk Management

In a typical corporate merger or acquisition, the associated intellectual assets exhibit several concurrent financial behaviors. On the balance sheet, intellectual assets behave like financial derivatives. On the asset side of the balance sheet, an intellectual asset creates the opportunity but not the obligation for an owner to capture above-average 'rents' from the sale of patented and/or branded goods and services ' a call option. An intellectual asset also creates the opportunity but not the obligation for an owner to assert patent rights against someone else, even if the owner is not using the rights otherwise ' a put option. On the liability side of the balance sheet, an intellectual asset holder may find himself targeted as a defendant where a host of incurred but not reported ('IBNR') historic events comprise a Pandora's box of expensive 'issues.' Hence, intellectual assets by their nature tend to generate volatile returns if the owner does not fully appreciate and manage associated risks.

25 minute read March 29, 2006 at 02:41 PM

By

Nir Kossovsky, M.d., Robert J. Block, And James M. Singer