Selling a Practice, Keeping the Team: A Huntsville Deal

The situation

Abena had spent close to two decades building an investment advisory practice out of Huntsville, serving a client base that included a large share of cottage-country retirees and business owners with significant investable assets. The practice was run through a professional corporation, a company structure many regulated professionals use to hold their business, with Abena as the sole shareholder. By the time she decided to wind down toward retirement, the practice carried an enterprise value her accountant and a business valuator had pegged at somewhere in the range of $6 million, depending on how the buyer treated one key relationship: Femi.

Femi was Abena's senior associate advisor, an employee rather than an owner, who had worked alongside her for nine years and personally managed the day-to-day relationship with a meaningful share of the firm's highest-value clients. Everyone involved in the sale process understood that a significant part of what a buyer was paying for was not just the client list on paper but the likelihood that those clients would stay once Abena stepped back. That likelihood rested heavily on Femi staying too.

The buyer was Jasleen, a commercial landlord who owned several retail and office properties across the region and had been quietly acquiring small professional practices as part of a longer-term diversification strategy, treating them the way she treated her buildings: as income-producing assets to hold. She had done this kind of deal before and came to the table with a term sheet that assumed something Abena's team had not yet tested: that Femi could simply be bound, as a condition of closing, by a non-compete agreement preventing him from working in the investment advisory field within the region for two years if he ever left.

The restrictive covenant problem

A restrictive covenant is a contractual promise that limits what someone can do after a relationship ends — commonly a promise not to compete with a business, or not to solicit its clients or staff. In a business sale, restrictive covenants usually appear in two places: a non-compete signed by the seller (Abena, promising not to open a rival practice down the street), and sometimes a covenant sought from key staff the buyer is worried about losing.

The second kind is where the deal ran into trouble. Ontario's Employment Standards Act, 2000 prohibits employers from entering into non-compete agreements with their employees. This is a relatively recent and fairly absolute rule: an agreement that stops an employee from working for a competitor, or starting a competing business, after their employment ends is generally void, no matter how narrowly it is drafted or how much the employee is paid to sign it. There are narrow exceptions built into the statute — most notably where a person sells a business and, as part of that sale, becomes an employee of the buyer, and for certain senior executive roles. Femi did not fit either exception cleanly. He was not selling anything; the shares belonged to Abena alone. And while he was senior within the practice, he held no executive title, no equity, and no decision-making authority over the corporation itself. On the facts as they stood, a non-compete signed by Femi would very likely have been unenforceable if it were ever tested.

That did not mean Jasleen was without options, and it did not mean the deal was in trouble — but it did mean the term sheet, as drafted, was built on a promise the law would not back up. A non-solicitation covenant, by contrast, is treated differently. A promise not to actively pursue a former employer's clients, as opposed to a promise not to work in the industry at all, generally remains enforceable if it is reasonable in scope and duration. That distinction became the hinge the whole negotiation turned on.

What we did

1. Flagged the enforceability gap before signing anything. Our team reviewed the draft term sheet during due diligence, before Abena countersigned, and identified that the proposed non-compete against Femi sat outside the statutory exceptions. Raising this early mattered: it is far cheaper to renegotiate a term sheet than to discover mid-transaction, or worse after closing, that a central protection in the deal cannot be enforced.
2. Separated the seller's covenant from the employee's covenant. Abena, as the selling shareholder, could lawfully agree to a non-compete and non-solicit of her own as part of the purchase agreement — that exception for business sellers is well established. We kept that provision, reasonable in geographic scope and limited to a defined term, and made clear to Jasleen's counsel that it addressed a real but different risk than the one posed by Femi potentially leaving.
3. Proposed a lawful substitute for the employee restriction. Rather than a non-compete, we drafted a non-solicitation agreement for Femi, restricting him from actively soliciting the firm's clients or staff for a defined period if he left, paired with confidentiality obligations already standard in his employment. This gave Jasleen meaningful protection against the specific harm she feared — clients being actively pursued — without relying on a term a court would likely strike down.
4. Insisted Femi receive independent legal advice. Femi was not our client and had interests that diverged from Abena's and Jasleen's. We recommended, and Jasleen's side agreed, that any agreement asking Femi to accept new restrictions and a retention structure needed to be reviewed by his own lawyer, both to make the resulting agreement more durable and to avoid any suggestion the covenant had been imposed without a fair opportunity to negotiate it.
5. Restructured the price around a retention holdback. Since Jasleen could no longer rely on a hard legal lock to guarantee Femi's continued involvement, we negotiated a holdback: a portion of the purchase price, in the high six figures, would be paid to Abena over an eighteen-month period following closing, contingent on client retention metrics tied to the accounts Femi managed. This gave Jasleen downside protection that did not depend on an unenforceable covenant, while giving Abena a real incentive to help ensure a smooth handover.
6. Built a separate retention package directly with Femi. Jasleen offered Femi a new employment agreement with a signing bonus and a two-year retention bonus vesting in stages, giving him a direct financial reason to stay through the transition on top of whatever non-solicitation obligations he accepted. This addressed the underlying business risk — Femi leaving — more effectively than a covenant that might not survive a challenge.

The outcome

The deal closed, but not at the roughly $6 million figure Abena had first hoped for. Once Jasleen's team accepted that the non-compete against Femi was off the table, they revisited their valuation and pushed for a lower headline price paired with the retention holdback, arguing, fairly, that the risk of losing a third of the client relationships was now something they were carrying without the protection they had originally assumed they would have. After several rounds of negotiation, the parties settled on a purchase price around $5.4 million, with roughly $700,000 of that held back and released in installments tied to client retention over eighteen months.

Femi accepted the new employment terms, including the lawful non-solicitation covenant and a two-year retention bonus, and stayed on through the transition. Abena's final proceeds were lower than her opening ask, and the closing itself was delayed by roughly six weeks while the retention package with Femi was negotiated in parallel with the share purchase agreement — a real cost in both money and time. But the alternative, insisting on the unenforceable non-compete or walking away from the deal entirely, would have left Abena holding a business she was ready to exit with no buyer willing to proceed on those terms.

A year after closing, the retention metrics in the holdback largely tracked in Abena's favour, and most of the withheld amount was ultimately released to her, though not all of it — a handful of smaller accounts moved on regardless, a reminder that even a well-structured retention arrangement cannot guarantee every client stays. Femi remained with the firm past the two-year retention period. The deal was not the clean, fully-priced exit Abena had pictured at the outset, but it was one both sides could live with once the legal reality of what could and could not be enforced was on the table early enough to negotiate around it.

What you can learn from this