Business History Books » Business Consulting Service » Acquisition consulting agreement questions
Acquisition consulting agreement questions
Question:
David: It would seem to me that if, as part of the sale, you agreed to receive a salary as compensation for the sale with no real work expectation, then the sale price would be understated and the broker should be entitled to a commission on this fee. However, if the salary is for a bonafide position, then I see no reason why a commission would apply. Contracts, as I see them, are no set in stone until signed (and even then they can be changed with the proper leverage.) Either modify the clause to have it state something like ‘ Consulting fees and salaries which apply to bonafide work are not subject to commission to the extent that the fees are considered normal in the circumstances. Only the portion of such fees deemed to be excessive when compared to the services performed would be applicable in calculating a commission.’ As always, seek professional advise – outside of newsgroups like this one. This is a good place to use as a sounding board – but no substitute for the hired professional. Mike – Hide quoted text — Show quoted text – > Hello… > I’m considering selling my company and have inquired about the servers > of an agent who specilizes in my industry’s area. He requires people > to sign a one year exclusive agreement with him. This seems very > standard and I don’t really have a problem with that. But I want to > make sure the wording and fees make sense and would appreciate any > feedback any of you could give me. > I’m particularly intererested in this paragraph: > "The selling price includes all down payments, consulting fees and/or > salary paid to the seller (unless otherwise stated), escrow’s, > earnouts, closing payments, and other consideration paid to the seller > in connection with the merger or acquisition. The consulting fee > portion of the "Consulting Agreement" in the table above is to be paid > at closing." > Would it be normal for the Agent to receive commission off of > consulting fees or salary that the seller would receive from the > buyer? As in if the buyer wanted the seller to work for them for a > period of time after the sale. > Here’s the full wording of the agreement (names have been replaced): > This one page "Consulting Agreement" is between > Inc.("Company"), and ******* Corp. *Agent* ("Agent"), President, is > to act as a seller’s agent to market and sell Company. The parties > acknowledge that during the term hereof Agent shall be Seller’s > exclusive agent for the purposes expressed herein. > Expectations: > I will use my best efforts to assist Company in selling or merging by > searching for potential buyers both private and public. You can > expect me to make myself available to travel anywhere in the U.S., > with one week’s notice, to meet with potential buyers or to meet with > your group. In addition, I will be available almost anytime for phone > calls, analysis, or other communication. As a Seller’s Agent of > Company, I will observe all of the reasonable aspects of > confidentiality. > Fee Structure: > The fee is the "Lehman Formula".: > 5% $0-$1,000,000 > 4% $1,000,001- $2,000,000 > 3% $2,000,001- $3,000,000 > 2% $3,000,001- $4,000,000 > 1% $4,000,001- Up > The selling price includes all down payments, consulting fees and/or > salary paid to the seller (unless otherwise stated), escrow’s, > earnouts, closing payments, and other consideration paid to the seller > in connection with the merger or acquisition. The consulting fee > portion of the "Consulting Agreement" in the table above is to be paid > at closing. > This "Consulting Agreement" shall remain in effect for one year unless > a potential buyer is in talks with this group. In the event a > potential buyer is in talks with the parties, this "Consulting > Agreement" will extend until talks with that specific party are > complete. Seller agrees to defend, indemnify, and hold harmless, > Agent from and against any and all liability, cost, litigation, > damages, or attorneys fees suffered or incurred by Agent as a result > of any claims made against Agent by potential or actual buyers of > Seller’s business. > Thank you for any advice you can provide. > David
Response:
Thanks for the great advice! 
-Dave – Hide quoted text — Show quoted text – >David: >It would seem to me that if, as part of the sale, you agreed to receive a >salary as compensation for the sale with no real work expectation, then >the sale price would be understated and the broker should be entitled to a >commission on this fee. However, if the salary is for a bonafide >position, then I see no reason why a commission would apply. >Contracts, as I see them, are no set in stone until signed (and even then >they can be changed with the proper leverage.) Either modify the clause >to have it state something like ‘ Consulting fees and salaries which apply >to bonafide work are not subject to commission to the extent that the fees >are considered normal in the circumstances. Only the portion of such fees >deemed to be excessive when compared to the services performed would be >applicable in calculating a commission.’ >As always, seek professional advise – outside of newsgroups like this >one. This is a good place to use as a sounding board – but no substitute >for the hired professional. >Mike
Response:
Hello… I’m considering selling my company and have inquired about the servers of an agent who specilizes in my industry’s area. He requires people to sign a one year exclusive agreement with him. This seems very standard and I don’t really have a problem with that. But I want to make sure the wording and fees make sense and would appreciate any feedback any of you could give me. I’m particularly intererested in this paragraph: "The selling price includes all down payments, consulting fees and/or salary paid to the seller (unless otherwise stated), escrow’s, earnouts, closing payments, and other consideration paid to the seller in connection with the merger or acquisition. The consulting fee portion of the "Consulting Agreement" in the table above is to be paid at closing." Would it be normal for the Agent to receive commission off of consulting fees or salary that the seller would receive from the buyer? As in if the buyer wanted the seller to work for them for a period of time after the sale. Here’s the full wording of the agreement (names have been replaced): This one page "Consulting Agreement" is between Inc.("Company"), and ******* Corp. *Agent* ("Agent"), President, is to act as a seller’s agent to market and sell Company. The parties acknowledge that during the term hereof Agent shall be Seller’s exclusive agent for the purposes expressed herein. Expectations: I will use my best efforts to assist Company in selling or merging by searching for potential buyers both private and public. You can expect me to make myself available to travel anywhere in the U.S., with one week’s notice, to meet with potential buyers or to meet with your group. In addition, I will be available almost anytime for phone calls, analysis, or other communication. As a Seller’s Agent of Company, I will observe all of the reasonable aspects of confidentiality. Fee Structure: The fee is the "Lehman Formula".: 5% $0-$1,000,000 4% $1,000,001- $2,000,000 3% $2,000,001- $3,000,000 2% $3,000,001- $4,000,000 1% $4,000,001- Up The selling price includes all down payments, consulting fees and/or salary paid to the seller (unless otherwise stated), escrow’s, earnouts, closing payments, and other consideration paid to the seller in connection with the merger or acquisition. The consulting fee portion of the "Consulting Agreement" in the table above is to be paid at closing. This "Consulting Agreement" shall remain in effect for one year unless a potential buyer is in talks with this group. In the event a potential buyer is in talks with the parties, this "Consulting Agreement" will extend until talks with that specific party are complete. Seller agrees to defend, indemnify, and hold harmless, Agent from and against any and all liability, cost, litigation, damages, or attorneys fees suffered or incurred by Agent as a result of any claims made against Agent by potential or actual buyers of Seller’s business. Thank you for any advice you can provide. David