Non-Compete and Non-Solicitation Covenants in M&A Transactions

M&A Deal Tip #10: M&A Attorney Shannon Zollo explains the importance of non-competition and non-solicitations covenants when buying a business.

What are non-competes and non-solicits?

Non-competition and non-solicitation covenants are typical within the context of an M&A transaction. So, when we're speaking about non-competition and non-solicitation, what do we mean? Any buyer in a sophisticated M&A transaction is going to want to purchase a company, and prevent the sellers of the company from turning around after the deal closes and going out onto the marketplace and competing against the buyer.

Whether or not a non-competition or non-solicitation covenant is enforceable by a court is really predicated on two key considerations: Whether or not the time and scope of those covenants is reasonable, and whether or not there was sufficient consideration paid in exchange for the commitment to fulfill those covenants.

So it's very important when structuring a deal as a buyer — when seeking to enforce these types of covenants — to make sure that you pay adequate consideration for what you're seeking.

For more resources on M&A transactions, please see:
Mergers & Acquisitions Practice

See also:
Top Ten Issues in M&A Transactions