It is common for non-compete agreements to be executed as part of the purchase agreement. These agreements often restrict the seller from starting a competing business, joining a competing firm, hiring away employees or interfering with vendor relationships. With potentially decades of relationships and goodwill at hand, sellers could potentially damage the business if they decided to interfere post-transaction. Buyers don’t want to acquire a business just to see the seller open a competing business and approach the newly acquired customers. The great news is that nearly 100% of sellers are selling because they have no interest in staying in the business!
Reasonable non-competes don’t allow sellers to work in the same industry in a specific geographic region for three to five years. Geographic restrictions may be tied to a specific location, like a radius surrounding the acquired business’s principal location, to all locations where the business is conducted, or where customers or clients are located. However, the restrictions may not prohibit competition in other areas where the seller did not conduct business or have customers.
One size does not fit all for non-competes. Buyers and sellers should carefully consider the circumstances to ensure that they have an agreeable and enforceable non-competition agreements. And remember, if you are a seller and you resist a non-compete agreement or the terms too forcefully, it can quickly send a red flag up for the buyer.