We often hear buyers inquire about the protections offered by a non-compete agreement. The issue that concerns them, of course, is "what prevents the buyer from going out and starting the same business across the street from me?" And it is a good point: in many small businesses, the vast majority of value is not in assets, but rather in intangibles such as the customers, location, etc.

There are a number of constructs that can help you protect your interests in the business you are buying, but they all center around a well structured non-compete agreement.

Issues to Address in a Non-Compete:
Geographic Reach of Non-Compete. To be effective, a non-compete agreement should address the geographic reach it is to encompass. For many small business transactions, a range of 100 miles is sufficient. For single-branch retail operations, an even smaller range might be appropriate- perhaps as little as 25 miles. For companies that have a wider territory, the exclusion might be the entire country.

The M&A world, and particularly larger transactions, are driven by the availability of cheap credit. We have all certainly seen the ebb and flow in the credit markets - from easy lending terms in the 90s, to a tightening during the 9/11 era recession, and back to an abundance or credit availability in recent years.

A Tip from Clear Rock: One of our favorite places to find current strength data on general market trends is the Small Business Research Center. We're certainly excited to see that they have expanded their coverage, and will be adding data on market strength in the Wholesale / Distribution segments.

In most business transactions there comes a point in time when a formal offer is made and accepted. Although the offer can take many forms, we often see it crafted as a "Letter of Intent," or an "LOI". Often times one or both parties will execute such a document with the idea that either all or part of the document is not binding on the parties. The underlying idea is that both parties want to explore a transaction, and want to begin to formalize the terms under which due diligence and a sale will take place, but want the freedom of certain "out clauses."

The "Material Adverse Change," or MAC Clause. It is in every asset purchase and stock purchase agreement. It's always been in there - mostly little noticed and slightly neglected. At least it has been for some years, and especially in the lower-mid market M&A world. Now, it is back. Time to read the fine print.

Invariably, there is a common set of questions that every savvy buyer will ask of a company as they are evaluating an acquisition. From a seller's perspective, the more prepared you are to answer (and the better answers you have) , the better your sale prospects.

Although every sale is different, there are a number of common items that have to be completed in all business transactions. Consult your broker and attorney regarding your specific situation, but we have provided the following "Checklist to buy a business" starting point to get you thinking about the tasks required for a closing.

Purchase Agreement
This is the main contractual document that outlines the key terms and conditions of the sale. Both parties should review this document, making any required changes, prior to going to a closing.

Most people interested in purchasing a business are probably well aware of the different available loan programs that help potential business owners become business owners. For those just getting started in the process, here is some information regarding the Small Business Administration's most popular loan program, the 7(a).

Global Imaging Systems, Inc. acquired Marbaugh Reprographics Supply Company, Inc.  Marbaugh is a dealer focusing, in part of wide-format copiers and scanners. 

What The Acquisition Means

Service companies can be a tricky type of business to sell. The number one question that we see asked is “when the owner leaves, are all of the accounts going to follow him/her out the door?” The idea that the “owner is the business” is the central problem to overcome when you seek to sell your company.

A successful strategy for dealing with this issue will pay significant dividends when the time comes to sell. Here are some mechanisms for you to consider:

• Build a Strong Team
• Continuity Plans
• Formal Procedures
• Contracts
• Non-Compete Agreements

What do we mean by service companies? Typically these refer to non-retail, non-manufacturing type businesses. Some examples include:

• Insurance Brokerages
• Accounting Firms
• Travel Agencies
• Medical Transcriptions
• Et cetera

Working on the above tasks – preferably in advance of your decision to sell – will go along way towards making your business more attractive to the market place.