The direct approach is to determine the present value of potential future economic damage that would result directly from the non-application of a non-compete agreement. The direct approach is a little simpler, as it involves estimating direct damage caused by competition, usually in the form of a percentage of lost revenue. This method is used more often because only an estimate of future operating results is required, making the analysis less tedious. Both methods should, if properly applied, lead to a similar value conclusion. My first deep experience in understanding competition contracts (many years ago) was in graduate school. At that time, the examples cited included only transactions between large publicly traded companies. As an expert in business valuation, I have found that non-competition bans on agreements involving tightly managed companies are “standard fair” – especially when the seller is not of retirement age. A non-compete agreement is a buy and sell agreement that prevents a company`s seller from competing in that business in the future. These agreements generally last for a specified period of time and may apply to a given geographic area (usually the area currently served by the company concerned). As part of the application of the direct damage approach, the first step is a risk analysis to determine the maximum potential damage that could occur if the seller competed with the acquired transaction. Non-competition agreements facilitate the way in which non-competition agreements can allow for a smooth transition within companies. You can also help with transactions after a merger or acquisition – but only if the buyer and seller are also satisfied with the financial results. An experienced evaluation expert can ensure that the non-competition agreement will be properly evaluated.
This step includes conducting a probability assessment to determine the likelihood that the former owner would compete without consent. This is probably the most difficult and subjective part of the analysis. Some of the factors that affect the likelihood of the former owner are in competition: a qualified valuation analyst should be consulted when a federal state does not need to compete or evaluate intangible assets. The third step is to determine the present value of the economic damages avoided during the duration of the non-competition agreement. The second step is to determine the “expected value” of losses on the basis of a probability assessment that takes into account the likelihood that the seller will compete with the acquired transaction.