A covenant not to compete only has value to the extent that it “protects the value of the purchased assets of the business (both tangible and intangible) by restricting the seller’s competitive conduct after the sale,” writes Gary Trugman (Trugman Valuation Assoc. Inc.), in a new article for the February 2012 BVUpdate. As a result, a CNC’s value depends on factors such as:
- The ability of the seller to compete after closing the sale, which may implicate the seller’s age, health, professional standing, etc.;
- The derivation of the non-compete; and
- The losses the buyer (the company) would suffer if the seller, in fact, competed.