How will the FTC’s noncompete ban affect M&A? Practical Guidance for Private Middle-Market Business Owners
Northern Edge CEO and Founder, Paul Daitz, recently spoke to Dan Primack of Axios for his article, “The FTC’s noncompete ban would change M&A”.
Background: The Federal Trade Commission recently proposed to ban noncompete clauses. While the main focus of this proposal relates to relaxing restrictions on former employees taking jobs with rival companies or starting competing businesses, it also includes an important change that would benefit certain sellers in an M&A context. Specifically, the FTC is proposing that the ban on noncompete clauses between the seller and buyer of a business would apply to an owner, partner or member holding less than a 25% ownership interest irrespective of the value of that interest.
Paul Daitz, CEO of sellside advisory firm Northern Edge Advisors, says this often becomes an issue with the sale of family-owned businesses, where a cousin or uncle still holds 10% but isn’t involved in the day-to-day.
The proposed change should alleviate this issue. It remains to be seen how the ban on employment based noncompetes will affect M&A transactions as this is a common feature of most deals in connection with the senior management team.
Read the full article on Axios here: https://www.axios.com/2023/01/11/the-ftcs-noncompete-ban-would-change-ma.