I'm selling my HVAC company (about $2.3M revenue) and the buyer's attorney sent over a non-compete that says 5 years, 150-mile radius, all of North America, any business even remotely related. Feels like overkill. What's actually normal for a small business sale like this? I get they want protection but this seems extreme.
Non-Compete
What is a normal non-compete clause in a business sale?
5 years is long unless you're getting a big earnout tied to it. My broker said 2-3 years is typical for service businesses. 150 miles all of North America is contradictory lol. pick one.
Are You staying on during a transition period? That changes things a lot. If you're staying 6 months, a longer non-compete is easier to justify. If you're walking away day one, push back hard on the term.
Walking away, maybe 30 days of handover. No earnout, straight cash at close.
Then 5 years is a lot. 2 years, maybe 3 with a carve-out for passive ownership. The 'any business even remotely related' wording is the part i'd fight hardest. You should be able to do something adjacent without getting sued.
IANAL. But from what I've seen, the geographic scope usually tracks where the business actually does business. 150 miles for an HVAC company is reasonable if you serve that area. 'All of North America' is a red flag, especially if you've never sold a unit in Canada.
Agreed with the above. Also check wHether the non-compete is enforceable in your state. Some states are notoriously hostile to these. That might give you leverage regardless of what the buyer wants.
Wait, are they asking you to not work in HVAC at all, or just not solicit existing customers? Those are very different things. The customer-solicit clause is usually the one I'd focus on. Broad non-compete + customer clause is double-dipping.
It's both. Non-compete AND a non-solicit. The non-solicit I'm fine with. It's the geographic/term combo that bugs me.
Lol at 'all of North America.' What's next, Mars? Seriously though, push back. Counter with 2 years / 100 miles / HVAC installation and service only. Let thhem negotiate down. They probably know 5 years won't fly.
BitterPear makes a good point. If they have a solid non-solicit of your customers and employees, they don't need an absurd non-compete. The two together should cover what they actually care about, which is you not stealing the book of business.
Counterpoint to some of y'all: buyers get spooked by anything that could let you start a new HVAC outfit down the street in a year and call all their now-customers. 3 years/75 miles is what my M&A buddy callfs 'market.'
MooseTracks85 is right that there's a market standard, but market standard for residential HVAC is not 'all of North America.' That part is a negotiating tactic. A lawyer on your side will knock that off in a single redline.
This thread is making me realize I need to re-roead my own sale docs. We did 3 years but I never looked closely at the radius. Probably 50 miles. I think I got lucky.
Worth asking: was this the buyer's first draft or the final? First drafts are always inflated so they can 'concede.' If your broker is worth the fee they should be redlining this before it even hits your inbox.