Business transfers, mergers and acquisitions - negotiating the purchaser and sale of a LLC business - Ronald J. Cappuccio, J.D., LL.M.(Tax), business lawyer

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Ronald J. Cappuccio, J.D., LL.M. (Tax)
Counsellor at Law
1800 Chapel Avenue West, Suite 128
Cherry Hill, New Jersey 08002 US
(856) 665-2121 Fax (856) 665-9005
Email: Ron@TaxEsq.Com

“Timid men prefer the calm of despotism to the tempestuous sea of liberty.”
-Thomas Jefferson

Helping Small and Emerging Businesses become more profitable!

Business Transfers - Mergers and Acquisitions - FAQs

Negotiation Question 1/11/07

Name: David

Subject: Business sale transaction fees

Question: Dear Mr. Cappuccio:
I am preparing an offer to purchase my employer. I would like to know what a typical sales commission fee would be on a six million dollar transaction as this will influence my offer. Thank you for your time.
David

Answer: David:

Typically, the Broker's fee for the transaction would be about 5%. This can vary depending on the type of business and work required. If the matter is very complex, the fee can reach 10%.

I hope this helps!

Ron Cappuccio
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Letter of Intent 10/16/07

Name: John
Subject: Letter of Intent
Question:
I saw your response to a question about due diligence and LOI's. I am interested in any sample non-binding LOI's you may have. I am considering entering into a due diligence period to acquire a company. Any help is appreciated.

Answer:
John: I know you think there are "magic forms," but I individually draft my Letter of Intent documents based upon the client's circumstances. For one, I use significantly different language when I represent a Buyer vs. a Seller. I always want to do the drafting because I can best represent my client that way.

Secondly, I prefer a "Memo of Understanding." This is UNSIGNED and is an outline of the transaction. The big advantage is the ongoing negotiation helps in the preparation of the Agreement of Sale and related documents.

I provide my clients with a business purchase checklist and I am sure your attorney will do the same. I also prepare a spreadsheet modeling the business and determining if it is financial affordable. I am glad you are aware of the need for due diligence prior to purchasing the business. It would just be better if your attorney was involved from the beginning to protect your interests.

I hope this helps!

Ron Cappuccio

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Outsourcing an Entire Product 10/1/07

Name: Gene
Subject: Vendor Financing
Question: QUESTION: VENDOR FINANCING I need someone to negotiate (or coach me to negotiate) vendor financing to start an invention-based, on line, wholesale/retail store. Questions: Apart from the viability of the product and the trustworthiness of the vendor, what are the basic principles that govern such negotiations. Does it boil down to competitive bids? Is there a standard for calculating compensation for such financing? How do you prepare for negotiations?

Quote: “Is it feasible to negotiate an agreement to fund the manufacturing of an entire project through a vendor who supplies the parts, assembles & packages the product, and supplies the first finished goods for distribution, in return for an exclusive manufacturing agreement for a set-forth period of time.” (or ‘quantity of product’ - sic) This seems to be exactly what I need. My new product (patent-pending) is superior to the competition, can be cost-effectively manufactured by fabrication of sheet acrylic in a relatively small quantity, in short lead-time. It has a ready wholesale/retail channel in a major product-sourcing, on line directory used by on line stores. I have received quotations from seven contract manufacturers, two or three of which I can negotiate with. The start-up costs are as minimal as one can desire in such an enterprise. Cheers …

ANSWER: Gene: It is very hard to negotiate for yourself and you are right to state you need help. When you have someone doing your negotiating, that person can take positions that you might not be able to take. You should read a really good book on negotiation. I have my law students read "Negotiate This" by Herb Cohen. I am concerned that the proposed deal could result in your business having all of its "eggs in one basket." Is the vendor a US company? If not, particularly if the vendor is in China or another country noted for ignoring patents and intellectual property, you MUST PAY ATTENTION to Trustworthiness. I would be happier if you had several vendors supply a discrete part with the final assembly in your control. I know you have suggested competitive bidding. As a small customer, you might do a lot better negotiating with a vendor you can trust and with whom you feel a high level of comfort. It is easier dealing with people you know and like. I really suggest that you should retain a good attorney to negotiate the deal for you.

I hope this helps!
Ron Cappuccio http://www.taxesq.com

---------- FOLLOW-UP ---------- QUESTION:
Ron 1. I reside in the West Indies. The manufacturer is American and has signed an NDA and non-competition agreement before being allowed to quote on the project.

Question 1. Do you still suggest I use more than one supplier? 3. I was looking for a rough formula to determine compensation due to a supplier for financing. For example, the supplier can be paid more than they bid for the job, proportionate to their exposure and for a pre-determined number of parts, in return for supplying parts, raw materials, printed materials, packaging etc. "up front".

Thanking you …. Gene

Answer: Gene: If one supplier can do it faster and cheaper, it may be initially better. Nevertheless, you still run the risk of losing your only supplier.

Secondly, the type of agreement you are referencing is similar to a purchase order. For example, you may agree to purchase 100 units during a 12 month period. You and the manufacturer could agree to release 10 products at a time with you just paying for those items received. This is a common practice, although you will pay more than if you purchased all 100 units because the seller is financing and storing the units.

I hope this helps!

Ron Cappuccio

Please call me at (856) 665-2121 or Email me to discuss financing for your business.