Sellers should have a shopping list too

Trend Micro's acquisition of Provilla makes a clear statement that data loss prevention is viewed as a feature of endpoint security. Trend had to make choices as to whether to purchase a desktop software or to go with a network appliance approach; whether to spend big money for an established company or to spend shorter money for promising software technology.

There are lessons to be learned here if you work in a privately held security company that will someday be looking for a profitable exit. Companies are always for sale - it's just a matter of price. Protect yourself by analyzing why your company is attractive, and planning ahead for who would be the best suitor.

Segment or feature? This is by far the toughest question to answer. Startups have a zealous sense of mission, but at some point the management team has to step back and objectively assess if they are in a valuable standalone segment or a feature of a larger segment. I use two acid tests for this: if the total market size after a five years is less than $100 million, then the capability is a feature; if prospects in IT like the capability but encourage you to integrate with installed technology, then the capability is a feature.

Business fit? When listing the best acquirers, give priority to alignment in business models. Sales and order fulfillment infrastructures are not easy to change. If your capability is a viable segment, then your attractiveness to an acquirer will be to make money by feeding the channel and selling a product to the installed base. If your capability is a feature, then your attractiveness is how well you enhance an acquirer's established product line. In either case, you have to fit into the acquirer's business model. For instance, companies built on subscription service revenues may not integrate well with businesses built on perpetual product licenses.

Technology fit? When listing the best acquirers, make sure the technology fits with the business needs. Obviously, an appliance is not well suited for a software vendor, nor will a Linux software application thrive in a Windows-oriented product line. The ease of technology integration, including system management, affects the amount of effort an acquirer has to expend to make the deal successful. When listing potential acquirers be sure to evaluate the for the technology , and your engineering team.

Trend Micro did well with the Provilla acquisition. Trend is purchasing technology at reasonably low cost that they can integrate into their desktop software. Provilla's DLP is viewed as a feature to the core desktop security offering, with the potential to also enhance Trend's gateway product for more comprehensive coverage. There was no need to pay a premium for a DLP leader for a product feature.

It will be interesting to see how a company like Vontu fares. The rumors are flying that Symantec will be buying Vontu. But Vontu's network-based data monitoring and prevention doesn't seem like the best fit for a subscription based end-point security and storage company. And Vontu will need to retain its own product line which means it needs to find a company that believes DLP is a sustaining market. Symantec has good experiences with Vontu contributing to its email security products, but will that be enough to drive the price multiple that Vontu's investors require?