A Boston-based client said it very well several years ago when considering M&A options for his "treading water" printing company: "My press operator doesn't think he can take home the press. Why does my sales person think he can just take the customers?"
The challenge facing printing company owners over whether and how to secure non-compete agreements was debated this week with a lively exchange of views on the NAQP list serv. Having encountered this issue from an M&A and business valuation perspective for many years, and being sensitive to the legal implications given my background as a lawyer, I unequivocally weigh in that a Non-Compete Agreement is NOT the ultimate solution to protect general intangibles.Let's clarify that the customer relationships belong to the COMPANY, not to individual sales people, as my Boston-based client lamented that cold day winter day in his office. Customer relationships are among the printing company's general intangible assets, which for most of the industry, are the most valuable of assets.......but not on the balance sheet.
For years owners have tried with only modest success to use non-compete agreements with sales people as a means of "protecting" this asset. The legal and practical impediments are well documented elsewhere, including the various comments that made the NAQP list serv over the past few days.
My advice to owners is to protect valuable customer relationships with a three-tiered plan as follows:
- Make sure owners/senior management connects with the customers so the relationship is extended beyond the sales person;
- Have sales people sign a non-solicitation agreement rather than a non-compete agreement. This is easier to enforce in court because the agreement restricts the sales person from soliciting the company's customers, leaving him/her free to otherwise earn a living.
- Have clearly documented procedures and policies that clearly state the ownership of data files, contact information, estimates, job tickets, etc are assets of the printing company.
Execution of the three-tiered plan to protect general intangible assets is more realistic than trying to enforce non-compete agreements and is more beneficial than doing nothing and leaving it to chance.
Please feel free to consult with me as this issue comes up a lot in the M&A context and we can tailor a solution to the specific situation at hand, which may or many not differ from the guidance outlined in this blog. After all, this is just a blog, right?
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