To our readers: “Big Deals” columnist Michael Collins and his panelists at the ProSales 100 Conference’s M&A session got so many questions that they didn’t have time to answer all of them. So we’ve launched a new periodic column, “Ask Big Deals,” in which Mike will begin by answering some of those questions. Do you have a query of your own for Mike? Write to him at mcollins@buildingia.com.
Q: Should members of the sales force be expected to sign non-compete agreements as part of a sale?
A: This item is subject to negotiation and is very case-specific. In general, we negotiate on sellers’ behalf from the belief that only individuals who receive significant value in the transaction should be expected to sign non-compete agreements. If the head of sales was an early partner and owns a stake in the company, they would be expected to sign a non-compete agreement. A non-owner member of the sales team would not be expected to do so.
However, value comes in more forms than just cash paid at closing. For example, a buyer who provided the sales team with employment agreements could be seen as providing those sales reps with greater job security and thus may ask to have them sign non-compete agreements.
In other cases, when a buyer establishes an actual equity vesting schedule or a phantom equity program from which members of the sales team benefit, the buyer may ask for a non-compete.
As a general rule, buyers will expect non-competes prior to closing only from team members who benefit most directly from the transaction. Like any aspect of running the business, a buyer may decide post-transaction to have all new or existing sales team members sign non-competes. At that point, their decision to do so would be subject to what the sales team would accept and applicable employment laws.
