Buying or Selling a Dental Practice: Key Letter of Intent Points

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Buying or Selling a Dental Practice: Key Letter of Intent Points

When it comes time to buy or sell a practice, one of the first steps is preparing and negotiating the letter of intent.  This document serves as the expression of the parties’ intentions in regards to the transaction and will lay the foundation for the to-be-prepared purchase agreement. As such, it is important to make sure some key terms are addressed:

Parties.Who is the buyer and who is the seller? It may seem obvious, but it is important to clarify parties from the get go.  The owners of the selling entity will also likely be included as parties.

Purchase Price. Another obvious one, right? Again, better to get it straight and in writing to prevent miscommunications later. How much? How is it going to be paid: lump sum; in installments; via earnouts?

Assets.The transaction will most likely be an asset purchase deal, rather than a stock or ownership interest transfer. Therefore, define the assets being acquired and those that will remain the property of the seller. Are accounts receivable being transferred and, if so, is a valuation adjustment to be used? Are the name and website of the seller to be included?

Assumed Liabilities.  Are the acquired assets being transferred free and clear of all liabilities or subject to certain liabilities? Are any contracts or leases being assigned?

Real Property.Does the seller lease or own the practice premises? If so, what is the intent regarding this real property? Will there be an assignment of the lease or a new lease? How much cooperation does the seller have to give? If the seller owns the premises, is the seller selling or leasing it to the buyer?

Due Diligence.All buyers will want a period of time to review the books and records of the seller to make sure the practice is worth purchasing. So make it clear how long this period will last and what the duties of each party are.

Closing Date and Contingencies.When will the closing occur? What conditions must occur prior to closing? Some typical items may include the buyer obtaining purchase financing, the buyer meeting licensure requirements to practice, successful completion of due diligence, release of liens and liabilities, receipt of necessary third party approvals and consents, no material adverse change to the seller’s practice, and others.

Restrictive Covenants.A hotly contested issue, it is best to address the non-compete and non-solicit obligations as soon as possible and include them in the letter of intent.

Post-closing Transition Assistance.  This is one of the most important terms, though its importance is often underestimated. The buyer and seller will often have different ideas of what the ongoing responsibilities of the seller will be after closing occurs. While the seller will probably just want to go off and enjoy the proceeds of the sale, some compromise regarding staying on and providing clinical and/or administrative practice assistance and referral/goodwill maintenance will be needed.

Expenses.Is one party paying some or all of the expenses of the other? Is each party responsible for its own expenses?

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