A foreign investor buying a Turkish company may want to prevent the seller from immediately establishing a competing business.
For this reason, acquisition agreements often include a non-compete clause.
What Can a Non-Compete Clause Cover?
The seller may agree not to:
- establish a competing business;
- invest in a competitor;
- solicit customers;
- hire key employees; or
- use transferred know-how against the buyer.
However, the restriction must be reasonable.
According to the Turkish Competition Authority, non-compete obligations in acquisitions should generally be limited in terms of duration, geographic area, business activity and persons covered. Restrictions lasting up to three years are generally considered reasonable in many acquisition scenarios, although longer periods may sometimes be justified depending on customer loyalty or transferred know-how.
Why Is It Important?
Imagine a foreign investor buys a restaurant chain, customer portfolio and brand.
If the seller opens a competing business immediately afterwards and approaches the same customers, the value of the acquisition may decrease significantly.
A properly drafted non-compete clause can help protect the goodwill purchased by the investor.
Conclusión
Foreign investors buying a company in Turkey should consider whether the seller should be subject to:
non-compete, non-solicitation and confidentiality obligations.
However, these restrictions should be proportionate and specifically drafted for the transaction.
This article provides general information and does not constitute legal advice.
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