Sunday, March 15, 2020
Customer Relationships - Corporate Asset?
Ownership of customer relationships is one of the most challenging issues in financial restructuring and distressed M&A for a service business. The inherent tension between maximizing the value of corporate intangible assets and individuals monetizing their personal goodwill is magnified under the microscope of a critical pending transaction. It’s common for the corporate debtor to seek value for these assets while the key people (who may or may not be owners) may run for the exits or put a toe in the water to be swept away to a competitor.
The company’s lenders and creditors have a voice in this debate when a company is insolvent, generally seeking to realize the value of all corporate assets, including if possible, monetizing the intangible assets. It’s logical because if the customer relationships belong to the corporate debtor, they are subject to bank liens and creditor claims. If the customer relationships are an asset that is untethered to the corporate entity, they are capable of walking out the door freely.
Rapid fire negotiating decisions require well-reasoned tactical judgment from the M&A advisor to navigate the mine field of issues related to retention of customer assets.