VTI Inc. ("the company" or "VTI") was a $17 million manufacturer of PC's located in New Jersey. The company brand labeled the PC's they manufactured and sold them under the VTI brand name. The PC's were manufactured and technical support was provided from a 10,000 square foot facility in central New Jersey.

VTI was a plaintiff in a law suit with a former shareholder/partner and was also a defendant in a cross claim from that former shareholder. This litigation was still in process when The Transition Companies was retained and commenced The Transition Companies M&A Process.

The company's major customer was the State of New Jersey. VTI had been selected a vendor based on product quality, technical support, extended warranties, and local responsive service. The company also was designated as a minority business enterprise ("MBE").

The Transition Companies evaluated, valued and analyzed the company, business, customer base, operating platforms, tangible assets and infrastructure. We also reviewed the many intangible assets of the business that we thought would be of value to a potential acquirer.

The issues that The Transition Companies and VTI faced as we entered The Transition Companies M&A Process were as follows:

• Pending litigation is always a concern to potential acquirers.
• VTI, as a selected vendor with minority business enterprise designation, is subject to certain restrictions within the State contract. According to the State, VTI could not maintain its business relationship with the State if it sold more than 50% of its stock to a non minority business enterprise designee.
• IT spending had decreased resulting in decreased revenue and earnings for Vertex.

The Transition Companies developed a target list of 397 prospective buyers. "The best buyer is a strategic buyer that is selling a peripheral or complimentary product into the same market" according to Michael Ryan of The Transition Companies. "We use our extensive resources combined with the results of our client company evaluation to develop optimal prospective buyer lists." The Transition Companies' evaluation of VTI revealed several intangible assets that The Transition Companies felt would appeal to certain strategic buyers.

The prospective buyer list resulted in many responses and The Transition Companies screened the buyers down to 5 finalists. These 5 finalists were invited to forward offers to acquire VTI. After reviewing The Transition Companies' in-depth analysis of various offers, VTI accepted one offer and entered into a Letter of Intent (LOI).

The acquirer was a software company that was selling into the State of New Jersey and municipal markets and wanted to broaden its product line with PC's and peripherals. However, the acquirer was not a minority business enterprise.

The Transition Companies was able to structure a transaction with the buyer to acquire 49% of VTI thus protecting the MBE designation. The seller retained 51% of the company but received full business enterprise value for the entire company through cash payments and a non recourse loan.

During the course of structuring and closing the transaction and dealing with all the closing related issues, The Transition Companies was able to have the law suit against VTI dropped by the plaintiff. Consequently the cross complaint was dropped and the transaction closed 45 days from Letter of Intent.