Non-competes in acquisition deals

Lesson 5 of 8 · 7 min read

Buyer-side non-competes (binding the seller after a sale) are typically *more* enforceable than employee non-competes, courts generally accept that protecting acquired goodwill is a legitimate interest.

Why they're enforced. The buyer paid real money for customer relationships. If the seller could immediately set up across the street and re-acquire customers, the value transferred would be illusory. Courts consistently uphold reasonable acquisition non-competes for this reason.

What's "reasonable." Geographic scope tied to the actual route footprint (not the entire state). Duration of 2–5 years (longer can be enforceable for higher-purchase-price deals). Specific to the same business activity (pool service), not all entrepreneurship.

Common scope by deal size.

- Small route ($50k–$200k): 2–3 years, ~25 mile radius
- Mid route ($200k–$700k): 3–5 years, county or metro area
- Large/multi-route ($700k+): 5+ years, multi-county or state-wide

State variation. Even buyer-side non-competes are unenforceable in California (with a narrow sale-of-business exception). North Dakota and Oklahoma also restrict them. Most other states enforce reasonable terms.

Carve-outs to negotiate.

- Geography: exclude areas where you genuinely won't compete
- Activities: exclude unrelated businesses (consulting, repairs only, equipment sales)
- "Inadvertent customer" language: if a former customer of the route reaches out to you unsolicited, you can refer them back to the buyer (avoids accidental violations)

Personal vs entity binding. Negotiate that the non-compete binds you personally and any entity you control, but only those. Avoid language that could be read to bind your spouse, adult children, or former employees.

Quick check

1. Why are acquisition non-competes more enforceable than employee ones?
2. Where are even acquisition non-competes mostly unenforceable?
3. Carve-out worth negotiating?
4. Why are acquisition non-competes more enforceable?
5. Where are even acquisition non-competes mostly unenforceable?
6. Acquisition-context non-competes are typically enforceable for ____ years post-close.
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