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Brownfield versus Greenfield
Opportunities
Alternatives when searching for diamonds in the rough – the search for an
acquisition target
By: Bruce Bahlmann - Contributing Author (your
feedback
is important to us!)
Created:
July 19, 2005
Note: This paper is the product of
Due Diligence Checklist which
is available from Birds-Eye Network Services.
To a person not skilled in the art of acquisition, a Brownfield
Opportunity might represent some kind of public works program or an
initiative to improve the storefronts of a particular area of a city.
However, on the subject of acquisition, Brownfield Opportunities are the
opposite of Greenfield Opportunities. In this article we will examine both
and what they mean for the potential investor.
Greenfield Opportunity
When someone mentions a Greenfield Opportunity to you, several things may
come to mind including the chance to be the first to develop and sell
products, a virtually non-competitive landscape, infinite opportunities to
patent technology, and a wide open field with lots of room to grow in
multiple directions. Greenfield Opportunities offer potentially huge
financial rewards but along with those rewards come gigantic risks and major
investments of energy, capital (money), time, and personal sacrifice. If
there is little or no competition that generally means perhaps other
companies have looked at this field too only there wasn’t sufficient
interest from potential customers to develop and sell products. Greenfield
Opportunities also represent such a new field that in most cases potential
customers won’t understand the value proposition so a significant amount of
education is required to get them to buy. In many cases, the use or need of
such products does not yet exist or customers much to trained to understand
how they can extract value from your product as it is not remotely obvious –
thus creating large market growth cycles. Educating a whole industry or even
each customer is a daunting task that could postpone many entries into such
an area.
Brownfield Opportunity
When someone mentions a Brownfield Opportunity you get a lot of blank
stares back from people. For the record, there really isn’t such a thing as
a Brownfield Opportunity nor is it a commonly used phrase when applied to
business. Brownfield Opportunities are a made up description of companies
that have been left out in the pasture too long to the point where they
potentially have over grazed, and have left the grown brown or stripped of
all vegetation that would sustain life. Such companies are typically past
their prime, void of most of the staffing required to make a successful go
at making it within its specialty, on life support, or have filed for
bankruptcy. Inviting Brownfield Opportunities are those that perhaps entered
a once Greenfield Opportunity with vigor and amassed significant
intellectual property but was ahead of its time, unable to successfully
market and sell its products, possessed inadequate leadership to sustain the
company, or was unable to secure continued funding for the company. What
makes a good Brownfield Opportunity is not so much anything that the company
has developed by the way of products but rather what intellectual property,
right of way, or real estate that can be purchased on the cheap from this
company.
In the dire straights of the final days of a company and for any time
there after, assets of companies that have fallen out of grace or placed on
life support find themselves in a fire sale to satisfy creditors and others
interested in just trying to recapture unpaid debt. During such times
anything worth money is sold to the top bidder. If you are the only bidder,
such prices can be dirt cheap - especially in the case of intellectual
property to those unskilled in the art. During some fire sales an
intelligent buyer could acquire a whole portfolio of such a company for
cents on the dollar of what it costs to originally amass the portfolio.
Determining whether the technology is any good depends on a detailed
analysis of the patents as well as whether such technology is still commonly
used. Such patents in the hands of the right deep pockets could be easily
worth many times their purchase price. But the key is to know the industry
covered by the patents and have some insight as to how such technology is
currently being used or could be used in the future.
Forward Thinking
These days, entering a Greenfield Opportunity and merely amassing
intellectual property can be a very lucrative business over trying to make a
successful go at product development which in the end could be successful
but at a much higher risk of spending the human cycles to amass both a
product and the patents to protect that product. On the other hand, if one
thinks ahead about what might constitute as a Brownfield Opportunity 2-5
years from now they may make different decisions in terms of amassing
intellectual property without considering actually implementing or building
anything. Risking nothing other than time and money invested into submitting
patents costs less than hiring a team of engineers, is less risky, and could
be worth a lot of money someday – potentially much more than any product one
could every develop.
There are companies doing this today where their product is actually
Intellectual Property (IP) rather than something tangible. Such companies
ultimately amass a wealth of IP surrounding key areas and then either
license or spin a licensing poll around these key technology areas.
Companies interested to pursue that area can gain licensing to that
technology in a effort to build, market, and sell these products to
consumers or companies.
Check out these other Birds-Eye.Net papers/products regarding
intellectual property:
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