WHAT HAPPENED

• GPM Investments (GPM) acquired 60 gas stations from Corrigan Oil (Corrigan).

• As part of the acquisition agreement, Corrigan agreed not to compete for a period of time with the gas stations purchased from Corrigan. In addition, Corrigan agreed not to compete with GPM for another 190 gas stations that GPM already owned.

• Few of the 190 existing GPM locations were “anywhere near an acquired Corrigan” gas station.

• Because the transaction would reduce the number of competitors from 3-to-2 or fewer in five areas, the Federal Trade Commission (FTC) required divestitures in those areas.

• Additionally, the FTC determined that the non-compete was overbroad, noting that the non-compete was “untethered to protecting goodwill acquired in the acquisition” because it affected gas stations in “areas geographically distinct from the acquired” gas stations. For this reason, the non-compete was highly suspect and warranted FTC scrutiny.

• The FTC required the parties to revise the transaction agreement non-compete such that it was no longer in duration than 3 years and impacted an area no greater than 3 miles from each acquired gas station.

WHAT’S NEXT

• FTC Chairwoman Lina Khan confirmed that some non-compete agreements that are part of a transaction agreement are “necessary to protect a legitimate business interest in connection with the sale of a business, such as the goodwill acquired in a transaction.”

• Here, the non-compete terms were determined, however, to be “facially” overbroad in scope and unrelated to protecting any goodwill GPM was acquiring with the Corrigan stations.

• The FTC’s action suggests that it is on the lookout for overbroad non-competes that are not reasonably related to a legitimate purpose even if part of a legitimate transaction agreement.

• The action by the FTC provides sellers with an example to argue that onerous non-competes demanded by buyers have the potential to raise antitrust issues that could slow deal timelines, particularly if a non-compete is overbroad in relation to the products impacted, the duration of the non-compete, and/or the breadth of the geography covered.

Alex Grayson, a summer associate in the Washington, DC, office, also contributed to this article.