Before one company acquires another company, it performs due diligence. It checks that acquisition target’s balance sheet. It evaluates the target’s physical assets. It reviews its executives and overall staffing. It solicits input from customers and market analysts about that company’s products and services—as well as those of its competitors.
But if we really consider knowledge an asset, why don’t we audit that as well?
Sure, we may assign some value to the knowledge possessed by a potential acquisition target in some general way. We may factor in the fact that they have expertise in some particular technologies or that they operate in some geographic market we want to penetrate.
Those assessments, however, tend to be rather vague, incomplete and unverified. What if it turns out that the potential acquiree has a wealth of intelligence on their competitors? Would that make them a more attractive target? Conversely, what if it turns out that they don’t? Would that make them worth less?
What if they have lots of information on very large prospects? Or on markets where they’re not yet active—but that they’ve been planning to aggressively pursue? Could we assign value to those kinds of information assets?
And could the value of those assets support a decision to spend more on the acquisition—or, by the same token, not to make a higher offer as the negotiations proceeded?
These questions are moot, of course, unless we develop some means of performing such a knowledge audit. A company that finds itself becoming an acquisition target will obviously not simply give a potential suitor complete and unfettered access to all of its intellectual property prior to making a final deal. On the other hand, such a company would likely allow for some reasonable assessment of its assets if it wanted to at least entertain an offer. And, if it were a publicly traded company, it might even have a fiduciary obligation to its shareholders to accommodate a potential suitor’s inquiry.
One way to audit a company’s knowledge assets might be to inventory its unstructured data and run reports on that inventory. This would allow the potential suitor to see the relative volume of work-product relating to various topics—including technologies, markets, customers, competitors and partnerships. Reporting might also reveal how recently this work-product was created and/or which areas of the target company produced it.
While this kind of inventory wouldn’t enable the potential suitor to actually open documents and directly determine the quality of their content, it would certainly allow them to validate claims made by their target—and possibly discover previously unknown assets of value.
Just something to consider. Institutional knowledge is definitely a high-value asset. So it might be time for us to start incorporating an assessment of those assets into our valuations of companies that we are thinking about acquiring, merging with, or investing in.
Due Diligence, Information Optimization, institutional knowledge, Knowledge Asset, Knowledge Audit
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