Wragge Lawrence Graham & Co

UK 200 2013 position: 25

Private equity update: restrictive covenants and penalty clauses

Buyers of businesses are often anxious about what the sellers will do after completion of a deal. Where proprietors have already built up a successful business (particularly one based largely on personal contacts) and sold it, it is clearly possible that they may want to repeat the success. This would mean competition for the original business, possibly reducing its value.

Public policy dictates that competition is a good thing, as it means choice and competitive pricing for customers. However, those paying substantial sums to acquire businesses sometimes, understandably, take a different view.

There is a long line of cases covering the extent to which buyers can legitimately keep sellers out of the same market following a sale. This is usually done by contractual covenants, whereby the seller agrees not to take certain actions for a defined period. These restrictions may be backed up by provisions entitling the buyer to payment of specified amounts if the seller later breaches the covenants…

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Analysis from The Lawyer

  • Paul Wilson

    Regional: attempted merger

    Alliances, failed and successful, are the story of the year outside London

  • Belinda Bradberry

    Interior designs

    Polish up your retention policy - private practice lawyers are increasingly eyeing in-house roles

View more analysis from The Lawyer

Overview

55 Colmore Row
Birmingham
B3 2AS
UK
http://www.wragge-law.com/

Turnover (£m): 120.50
No. of Lawyers: 458