Gabe Oliverio on Negotiating A Non-Compete

 

johnsen-fretty-logoNon-competes are an important but often overlooked aspect of selling an outdoor company.   We asked Gabe Oliverio to discuss what sellers should be thinking about when they negotiate a non-compete.  Gabe is a managing director at Johnsen, Fretty & Co, an investment bank which specializes in divestitures, acquisitions, financings, and valuations for out-of-home advertising clients.

Gabe, why does an outdoor buyer ask for a non-compete?

Oftentimes its as simple as a buyer saying:  “I’m not going to pay someone a bunch of cash so they can build more and do more against me”.  Buyers prefer not to think of a transaction as a financing for their competitors.

signingWhat mistakes do sellers of outdoor assets make concerning non-competes?

  • Biggest mistake is for a seller not to cultivate optionality in a sale process. Not all buyers will insist on non-competes so it is important to have more than one option and be able to quantify the value of a non-compete in the context of multiple options.
  • Beyond that a big mistake I see sellers and buyers make is tendency to rigidly overvalue a non-compete. I see situations where both sides really want to do a mutually-beneficial deal but talks stall on what I think should be a relatively ancillary deal point. This is further amplified if a non-compete is two years or less (I.e. How much can a seller really do in two years? And how much exposure does a buyer really have in such a short timespan?).  If a seller really wants to stay in business and buyer sees anti-value in seller doing so, then why not harness seller’s acumen in some form of development agreement?

What parts of a non-compete are negotiable?

Everything is negotiable—starting with whether there is a non-compete at all. Within the context of a non-compete negotiation, key components are duration, applicable geography, what level of future OOH participation is acceptable, which key personnel (or family members of key personnel) are tagged with the non-compete, etc.  And obviously, part and parcel with the negotiation of the non-compete is its effect on overall purchase price.

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