How to Sell Your Business, page 25

Selling Technology and Internet Businesses

Technology and Internet business sales are, almost by definition, strategic sales. As explained earlier in this article in Valuing Technology, a key metric is how much it would cost the acquirer to duplicate your technology (replacement cost). Of course, the acquirer will also have to calculate the costs of modifying the technology for their own uses. And they will need to make their own assessment of the value of intellectual property such as patents.

Software is only valuable to the extent that it does something useful and has been engineered to professional standards. A company that has standardized on Java will only be interested in Java code (and so on, for other programming languages).

Detailed, professional documentation needs to accompany the technology. Source code should be maintained in a versioning system, and a detailed Quality Assurance methodology should have been applied.

It’s best to approach the sale of a technology asset the way you would have licensed the technology when your company was planning to be an ongoing concern. The same people—such as a Business Development officer and a technology representative—should probably be involved in the sale, either leading it or in support to the CEO.

Competitors and other strategic acquirers who do not wish to be saddled with liabilities and responsibilities related to your company may be interested in an unlimited source code license.

Managing Due Diligence

By the time you get to due diligence, you should be in negotiations with a small number of potential buyers. Likely, you will exclusively be talking with one committed buyer. Since many deals break down at this phase, it is important to manage it carefully.

If you are working with an investment banker and a two-stage auction, due diligence will be managed for you. Investment bankers set up a very controlled due diligence environment, usually establishing a process at a lawyer’s office for handling buyer queries, and try to keep the seller insulated from the process except during formal presentations.

If you are managing your own due diligence process as a seller, you should try to emulate the investment bankers. You should get a formal process in place that impedes the normal flow of business as little as possible.

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