What is Non-Compete?

What it is

An M&A non-compete is a seller restriction written into a purchase agreement or related document that limits specified competitive activity after closing. Its scope, duration, geography, covered parties, and remedies must be read with the transaction structure and governing law.

Why it matters in your deal

A buyer needs to know what business activity is restricted, who is bound, what consideration the transaction provides, and how the provision fits with employment, consulting, rollover, and seller-financing arrangements. An attorney must assess the legal effect in the governing jurisdiction.

Real example

A purchase agreement restricts the selling owner from operating a defined business, while a consulting agreement describes a continuing role after close. The buyer compares the defined business, permitted activities, affiliates, remedies, and end dates across both documents before finalizing the operating plan.

Red flags to watch

• •The restricted business or competitive activity is not defined clearly enough to compare with the acquired business
• •The people, affiliates, or successors covered by the restriction do not match the ownership and transaction documents
• •The purchase agreement, employment, consulting, or rollover documents describe inconsistent post-close activity
• •A remedy, notice, or dispute term appears only in a related agreement or schedule
• •The clause is treated as a legal conclusion without counsel reviewing the governing law and deal structure

What to do

1. 1Map the restricted activity, covered parties, exceptions, end point, and remedies from the signed-form documents
2. 2Compare the restriction with the seller's consulting, employment, financing, and rollover arrangements
3. 3Ask transaction counsel to assess the provision under the governing law before close

Primary sources and reference starting points

1. California Business and Professions Code section 16601
2. California Business and Professions Code section 16600