The Potential Impact of the FTC’s Proposed Non-Compete Ban on M&A Transactions and Private Equity Investments

The Federal Trade Commission’s proposed ban on non-compete agreements has sparked a heated debate in the business world, particularly in the realm of M&A transactions and private equity investments. The rule, which includes exceptions for “bona fide” sales of business, has left many wondering about its potential impact on the market.

The term “bona fide” has become a point of contention, with the FTC defining it as actions taken in good faith, without fraud or deceit, and with a reasonable opportunity to negotiate. However, the subjective nature of this definition has raised concerns about how it will be interpreted in practice, especially in the context of complex business transactions.

As the September 4 implementation date for the rule approaches, M&A negotiators are facing uncertainty about how to proceed. While the FTC argues that the rule will benefit worker mobility and spur new business formation, critics point out that non-compete agreements play a crucial role in protecting the value of assets in a transaction.

Investors and business owners alike are concerned about the potential impact of the rule on valuation and transaction structure. If non-compete agreements are invalidated, it could diminish the post-transaction value proposition and ultimately affect how much buyers are willing to pay for assets.

While the FTC may have good intentions with the proposed rule, the unintended consequences on investors and owners cannot be ignored. As the debate continues to unfold, the business community is closely watching to see how this rule will ultimately shape the landscape of M&A transactions and private equity investments.