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  AutoXray: Patents & Market Factors There are always contributing market factors that affect the sale of a business. Depending on the urgency of the acquisition, you may want to pay close attention to the market factors and use them to your advantage as you move forward with the sale of your business. In some cases the market factors may be the catalyst for the sale. The advancement of technology and growth of an underserved marketplace resulted in the development of some very powerful new diagnostic equipment in the automotive tool industry. AutoXray was exploiting this market niche as the larger tool manufacturers dismissed this segment as small and insignificant. The larger tool manufacturers believed that the low cost market was serving only the do-it-yourselfers, not their target, and would not impact their market. However the professional technician was undeniably drawn to the lower prices and started to become aggressive users of this more consumer-friendly, less sophisticated product. With the professionals purchasing these products the customer base was shifting, they were demanding more professional features from the low cost providers. The low cost tool providers were only happy to oblige. These market conditions put the two segments on a collision course. As these segments converged, AutoXray was starting to see challenges to its intellectual property. As the stakes in the marketplace rose, so were the efforts to outplay the competition. AutoXray had a very unique patent that covered the use of software code compression in automotive diagnostic equipment. This patent was not on the lager tool manufactures radar screen as it had little bearing on the high priced equipment that was being sold in their segment. These equipment manufactures could easily add memory with little impact on their margins. As large retailer’s devoured products at lower price points, the ability to deliver lower priced product to the marketplace was a key competitive skill. Using compression in the software code allowed the ever increasing dataset to be placed on smaller and smaller platforms. Without compression, it would prove near impossible to compete in the lowest of cost product category "The under the $100" price point that all retailers were seeking. AutoXray held the patent and was in a position to defend the patent. If they did not defend the patent, time and new products would erode the patents strength. The problem with patent litigation is it can easily exceed a million dollars. These were very high stakes for something with an uncertain outcome. The pros and cons were heavily debated and the decision was made to move forward to defend the intellectual property. In retrospect this turned out to be a good strategic move. One of the larger tool manufacturers seeking to move into the low cost market was pursuing an acquisition with one of AutoXray's competitors. The acquiring player was well known to AutoXray since they had previously been in discussions regarding a long-term partnering arrangement. Through the disclosure process the patent’s merits were revealed which furthered their interest to include Autoxray in their acquisition stream. This unique set of market conditions set up a favorable environment for the acquisition of AutoXray. Once the winds of change started they move rapidly and were only favorable for about a year. If AutoXray was unprepared to sell this widow of opportunity would be closed for some unknown period of time. |
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 1825 W. Knudsen, # B-100 P. 480.510.5550 
· Acquisition |
