SMART BUSINESS: Noncompete agreements can easily become a point of conflict in M&A transactions

Michael A. Ellis has always preferred corporate transaction work over litigation in his legal career. For nearly 40 years, he’s brought his understanding of the law to mergers and acquisitions, early stage venture capital deals and corporate securities. Ellis understands as well as anyone that time is money when he’s involved in M&A work.

“If a business transaction hasn’t moved in two or three months, it is likely dead,” says Ellis, a partner at Buckingham, Doolittle and Burroughs. “I enjoy being an implementer who is able to get clients and the other side to win-win situations.”

A noncompete agreement, in which one party agrees not to enter into or start a similar profession or trade that competes against another party, is almost always part of the sale of an enterprise, Ellis says. It’s not always easy, however, to bring the two sides together.

“A buyer doesn’t want to give the seller a boatload of money and then have that money used by the seller to start a new competing business,” Ellis says. “From a seller’s perspective, you do the preplanning before the sale.”

In this week’s Dealmaker Q&A, Ellis talks about when noncompete agreements come into play and how to avoid a prolonged legal confrontation.

How common are noncompete agreements in business transactions?

Asking for noncompete agreements from individuals who do not own any part of the business and who are not getting any proceeds from the sale — or are minority owners — can cause issues. Non-owners might think, ‘Why should I give something away now when I haven’t given it to you before? If I’m going to give you something, I want something in return.’ [Read the full article on SmartBusiness]