Why do I need to sign a non-compete?
By Adam Friend | Senior Vice President of Business Development
Buyers are willing to pay a multiple of EBITDA because they are assuming that the cash flow of the business will continue forever. Well, maybe not forever but for a long time. In a relationship-based business such as ours, there is no greater threat to a buyer than the seller re-entering the business and convincing their former clients to come back to them. So to justify paying a multiple of EBITDA, buyers request lengthy non-competition agreements from sellers to protect their investment and ensure that they can continue to generate the cash flow they expected for many years post-acquisition.
As a seller, you should make sure that you are comfortable signing a non-compete. If you want to maintain the flexibility to go back into business, you may want to reconsider whether it’s the right time to sell. Also, if you are joining the buyer for a career, get to know them well so you are comfortable that you will be happy working the remaining years of your career there.