Once a « no » value is determined, the value of the alliance is the difference between the value « with » and « without » the value of the alliance on the spot. Adequate sales revenue will also be a wise measure. In addition, it is appropriate to consider whether the non-competition clause is legally applicable. In general, non-competition prohibitions can only be enforced if they are proportionate. As a lawyer, you already know that the courts have refused non-competition prohibitions covering a disproportionate area or a long period of time. The Basics A non-competition agreement (or « Confederation, not to compete ») is a contract between an employee and an employer. The idea is that the worker agrees not to compete with the employer for a specified period of time and in a given geographic area. The assessment of a non-competition clause should take into account several factors. The second step is to determine the « expected value » of losses on the basis of a probability assessment that takes into account the likelihood that the seller will compete with the acquired transaction. The value of the entire transaction, 2) the probable damage that an infringement could cause, 3) the likelihood of competition, and 4) the applicability of the non-competition agreement. The third step is to determine the present value of the economic damages avoided during the duration of the non-competition agreement.
This step involves determining an appropriate discount rate to calculate the current value of expected losses. Consider the weighted average cost of capital (WACC) used to finance the acquisition as a starting point. In general, cash flows from intangible assets are more risky than those related to tangible assets. This additional risk would generally support a higher return to compensate the investor. However, since much of the risk in cash flow has already been eliminated by the probability adjustment (stage 2), it is unlikely that a significant risk premium (applied to the CMPC) will be appropriate. My first deep experience in understanding competition contracts (many years ago) was in graduate school. At that time, the examples cited included only transactions between large publicly traded companies. As an expert in business valuation, I have found that non-competition bans on agreements involving tightly managed companies are « standard fair » – especially when the seller is not of retirement age. After-tax cash flows with a non-compete clause In some cases, they receive an annual payment for a number of years. In other countries, the amount received by the seller is included in the total purchase price. In both cases, the seller makes a promise to the buyer that may have significant value for maintaining the future return potential of the acquired business. Therefore, a non-compete agreement is a significant (albeit intangible) asset for the purchaser, not to mention operational assets.
Note 4: Represents the estimated annual economic loss that will likely occur in the absence of a non-compete agreement. A qualified valuation analyst should be consulted when a federal state is not to be assessed against competition or intangible assets. What is « reasonable » varies from company to company, depending on the characteristics of the business, the statutes of the state and the jurisprudence, as well as the contractual terms.