April 5, 2023

How a Service Company can Spin-off a Product Company

Sometimes a company that provides services to its clients ends up developing a customized tool that uniquely benefits their clients as well – and that resulting product may have enough to stand up on its own as a separate business. Nemphos Braue has recently helped multiple service-company clients spin-off product companies, and Managing Member George Nemphos provided insights and examples in a recent article for the Baltimore Business Journal’s Maryland Inno.

When a service company has more to offer: Spinning off a product company
by George Nemphos

In the area of technology, we are seeing an increase in service-focused companies that are realizing they have even more to offer their customers. Somewhere along the way of providing a high-level, quality service, and while listening and responding to what their customers really need, a key solution begins to emerge. The company discovers a product offering for its customers – a tool, an app, a device or a core piece of programming, for example – and the result is an increased opportunity for investment or a buyer.

From maturation to opportunity

A new product’s design and execution is often a naturally occurring phenomenon. For example, a technology company begins as a startup with precise objectives and a clear target audience. As the startup grows its leadership, staff and customer base, it is infused with new ideas, new problems to solve, new failures and new successes. It blossoms, and from that maturation comes new opportunities.

From a solid foundation at the company’s base comes a specific tool, device, app or similar product – perhaps even something worthy of patent protection. Investors, fellow players in the industry or even complementary companies in a different industry take notice and see the product’s potential.

With that added attention comes a flattering bouquet of offers – private equity companies want to invest in the up-and-coming company or interested buyers present potential acquisition terms. In the current marketplace, we’re seeing different scenarios that yield strong opportunities.

Read the full article for two scenarios: a spin-off yielding an infusion of capital and buyer interest, and one that brings in capital for umbrella company.

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