When valuing a noncompete, research the applicable state laws where the agreements would be enforced

In chapter 7 of BVR’s Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combination, Gary Trugman lays out an 8-step, “with-or-without” analysis on how to value noncompete agreements. The appraiser estimates value based on the difference between two discounted future ben­efits calculations, one with the noncompete in force, and one without.

Step one of the eight is this:

  1. Identify the legitimacy and “economic reality” of the noncompete
Stephanie Singer, who practices at WilmerHale defines the first step in testing the economic reality of the noncompete…check the state laws where the agreement would be enforced.

State laws can influence the enforceability of many noncompete provisions. Smith holds out California as an example. “California does not uphold noncompete agreements under most circumstances.” No enforceability, no value.