After signing our LOI, the buyer's counsel inserted an overly broad non-compete covenant into the definitive purchase agreement that restricts our leadership team and shareholders from working in adjacent industries worldwide. How do we push back against restrictive covenants between LOI and close?

Question

Tyler Smith · Accepted Answer

Buyers frequently use vague language like standard customary restrictive covenants in the LOI, only to deliver draconian non-compete agreements in the definitive purchase contract. A restrictive covenant that prevents you or your key executives from participating in adjacent industries or pursuing non-competitive endeavors destroys the commercial intent of your agreement.

Push back immediately by anchoring negotiations back to the explicit text of the Letter of Intent. Your definitive agreement should restrict you strictly from direct competition with the precise products and services sold by the company at the closing date, not theoretical markets the buyer plans to explore five years later.

Narrow the scope across three distinct dimensions: geography, industry definition, and personal roles.
- Geographic reach must reflect the actual operating footprint of your business during the trailing twenty-four months, not a global blanket restriction.
- Industry definitions must be tied directly to your North American Industry Classification System (NAICS) codes and current product lines documented in your V/TO.
- The restrictions must separate equity sellers from non-owner leadership team members. Key executives should only be bound by reasonable employment-related non-solicitations, not market-wide non-competes that damage their professional livelihoods.

Permit customary carve-outs allowing passive investments of up to two percent in publicly traded companies and non-executive advisory roles in unrelated fields. If the buyer refuses to narrow an aggressive covenant, make it an Issue in your weekly deal review and require your counsel to hold firm. If a buyer insists on handcuffing your career beyond the business they acquired, they must pay an additional cash premium for the privilege.