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Independent Sales Representatives

Many companies choose to contract with independent sales representatives in addition to an internal sales force. In a merger or acquisition transaction, the existence of these sales reps can raise a number of issues with potential buyers:

  • Under the state’s laws, are the sales reps considered independent contractors or employees?
  • Have the sales reps complied with applicable state and federal laws relating to sales practices, anti-bribery and corruption (e.g., Foreign Corrupt Practices Act), data privacy, and intellectual property?
  • Have the sales reps’ activities in any state triggered a nexus for tax purposes?
  • Are company revenues highly concentrated in just a few independent sales reps?
  • Will the buyer keep the sales reps on after the transaction, or just use their own sales force?
  • Have outstanding liabilities for sales rep compensation been properly accounted for?
  • Do the sales reps’ contracts contain:
    • Change of control provisions requiring consent or assignment
    • Termination provisions relating to notice, severance and commission tails?

We advise clients with independent sales reps to carefully consider these issues well in advance of a sale transaction and take reasonable steps to reduce risk and exposure in the eyes of potential buyers. Moreover, if business owners can structure their sales rep agreements to give potential buyers the greatest degree of flexibility, it will likely increase the prices those buyers are willing to pay. As in so many aspects of selling a middle-market A&D company, it pays to plan ahead.

Have a great day everyone.

Kevin Gould
Managing Director, Aerospace