Recently, we have had some issues come up with non compete agreements for a few deals we are working on. I felt was a timely opportunity to cover this aspect of a website business sale for both buyers and sellers.

Every internet business sale will incorporate a non compete agreement or clause at the very least. This non compete element of the business is there to protect the buyer from an unethical seller who sells their existing business and turns around and starts another similar or identical business that competes with their old site! Of course this could devastate the new owners hopes of maintaining or growing their newly acquired business opportunity, as the seller would have complete insight on the marketplace, vendors, customers, marketing and advertising channels, etc. The non compete is designed to effectively legally eliminate this scenario from unfolding.

The usual length of time is 3 years, however some busines opportunities necessitate longer terms - 5-7+ years and some buyers demand more protection. If their are proprietary products, software, business practices that need exclusivity to stay competitive, then a longer term may be in order.

On the side of the seller, the term should not be as big an issue - assuming they are done with the niche and they typically have infinite other ideas and niches they would like to pursue! The seller's case usually involves not being limited or restricted to explore and develop other businesses providing they are in unrelated niches or businesses. This is usually accomplished by specifying exactly what they can not pursue - based on exactly what they are selling currently. An example case is identifying espresso makers and accessories as the specific products off the table - but perhaps not coffee beans, for instance. Making it crystal clear in the non compete agreement will avoid any future problems of overlap or competition, intentionally or otherwise.

In the case of another client, we discovered after going into due diligence when an LOI (letter of intent) or written offer was presented with the traditional 3 year non compete clause, the seller would not accept it? We discovered subsequently, that the seller had multiple sites in the same space selling a similar product! Whether this was naive exclusion or intentional misrepresentation is debatable, but what is important is securing a deal with the protection of a clear and concise non compete that is reasonable and fair to both parties. Obviously, this was a deal killer and likely saved the buyer from an unsavory experience.

In the end, most sellers sincerely want their buyers to succeed beyond them and are very accommodating with this aspect of the purchase agreement. If both parties place themselves in the other's position, a fair and balanced non-compete and purchase agreement are the final result.

 David Fairley

President, www.websiteproperties.com