Mature BusinessSAFEGUARDS

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  • Top Merger & Acquisition Considerations
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    Non-Compete and Non-Solicit Clauses

    Many pre-acquisition agreements include a non-compete or non-solicit covenant. This is basically a promise by both buyer and target companies that, for a certain period of time after closing, they will each refrain from:

    • Engaging in a business activity that is competitive with the other’s business activities (non-compete). Depending on the nature of the business, the non-compete may be limited to a specific area, such as a city or region.
    • Trying to lure/hire away each other’s customers or employees (non-solicit). This is particularly pertinent when a large company is acquiring a much smaller one, or one in the same industry.

    Another type of non-solicit clause is known as a “no-shop” provision. Here, the target company agrees not to solicit, give information to, or seek to negotiate an alternative sale transaction with another potential buyer. A no-shop provision is typically used with privately held companies. Public companies usually include a “fiduciary out” clause that essentially invalidates any non-solicit covenants.

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