What Does Non-solicitation Agreement Mean?
A non-solicitation, or non-solicit, agreement is a promise by both the target company and the acquirer that for a certain period of time after closing they will refrain from engaging in business that is competitive to the existing or acquired business and will not try to lure or hire away each other's customers or employees. This agreement is particularly pertinent when a larger company acquires a smaller one that operates in the same industry.
Divestopedia Explains Non-solicitation Agreement
When an organization acquires another one, two prominent types of clauses are signed by both parties: non-compete and non-solicit. Non-compete agreements prevent one company from partnering with a competitor or from creating a business that is directly competitive in any way to either organization. Non-solicit agreements, on the other hand, stipulate that one organization cannot lure or hire the employees of another organization for a certain period of time, which prevents loss of information and/or expertise for both.
There is also another type of clause that can be included in a non-solicit agreement called the "no-shop" clause. Under this clause, the target company agrees to not solicit or give any information to negotiate a deal with another potential buyer. This clause is mostly used with private companies because public companies have a "fiduciary out" clause to prevent non-solicit agreements.
Non-solicit agreements are also applicable when a buyer purchases assets from another business entity. When a non-solicit agreement is in place, it prohibits the buyer from soliciting the seller's employees, customers or suppliers. It is primarily used to protect the investment of the buyer, especially when it is an asset purchase. If this commitment is not in place, it could affect the value of the assets purchased for a price.