The would-be seller should hire savvy representation and consider bringing on investors or borrowing money, experts say
My small software company has developed an identity management product that I believe outperforms everything on the market. It has so much potential that it needs a bigger budget than ours to transform it successfully into a key product. I'd like to approach established high-value U.S.-based companies about buying either just this product or my entire company. Where do I start? —M.M., Stuttgart, Germany Start by determining your goals in this situation. If your company, your employees, and your other software products are absolutely vital to this new product, it probably makes sense to sell your company as a whole. But are you ready to walk away from your business? Be aware that if your employees and your other products are not compatible with the needs of potential buyers, selling the business outright may not get you a top price. Potential liability issues with your company, lack of U.S. intellectual property protection, and issues involving an American company buying a German business as a foreign entity might also pose stumbling blocks to a sale. What About Investors?
It may make more sense for you to consider attracting investors who can bring in both the cash and the resources to prove the market potential of your IM product, says Gregory R. Caruso, principal at Harvest Associates, a business brokerage in Baltimore. "Some equity investor groups that have sold products to large IT [companies, such as] Microsoft (MSFT) might be a good place to go," he says. "They can help get the product in position and bring in money, connections, and experience." Business broker Mike Maiman, senior managing partner at MKL Acquisitions, agrees."If the product is protected legally and producing revenue, it will be much easier, whether you decide to sell just the product or the whole company," he says.Maximizing the value of your product now will make it more difficult for others to replicate your efforts or minimize your position in negotiations."Large companies often don't mind paying a hefty premium for a product that is proven, because it saves them a lot of time, work, and risk," says Peter Johnston, founder of boutique advisory firm NAI Limited in Cambridge, Mass. Don't overlook the possibility of borrowing money, either from your private contacts or from end-users who might be persuaded that they need your product in their daily business activities. "If a customer who would use the product would sign an agreement with you, you may be able to use that agreement to raise money—borrowed or invested—from others," says Stanley D. Crow, president of S.Crow Collateral Corp.. Hired Guns on Your Side
Whichever way you decide to go, it will be important for you to get savvy representation. Software entrepreneurs have been known to complain that they were paid by industry giants just to keep their products off the market. It is easy for small, relatively unsophisticated businesses to be taken advantage of in such a competitive industry. You'll need a qualified person to help value what your company, or the product by itself, is worth, says Julie Gordon White, a business broker and owner of BlueKey Business Brokerage M&A. A professional can also help you determine the width of the landscape of potential buyers or investors. If you can afford it, and your IM product is truly a market breakthrough, you might approach a top technology law firm that has arranged deals like this in the past, Caruso says. An adviser there could help you determine the best course of action as well as introduce you to potential investors, buyers, and business brokers. If you can't afford such specialty talent, you can search for representation at such sites as M&A Source, Transaction Professionals,, and the International Business Brokers Assn.