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The Anatomy Of Dental and Medical Acquisitions
The process of acquiring or buying dental and medical practices starts with locating a suitable practice that is a good fit for you. The suitability of a practice depends on various factors from the location of the practice, the size of the practice, the purchase price, etc.
After locating a suitable practice, sellers usually offer some documents in exchange for a non-disclosure agreement. Some sellers, however, would rather receive a letter of intent (“LOI”) before offering any documents. So soon after locating your desired practice you should be ready to offer a LOI. A properly drafted LOI should include both binding and non-binding provisions.
The non-binding provisions of the LOI should be drafted so that your initial offer will not bind you into purchasing the practice without first receiving the appropriate documents that will allow you to learn more about the practice such as the practice’s gross revenues, annual increase or decrease in gross revenues over the last 2-4 years, net profits, lease terms, rent and annual escalation of rent, payroll costs, existing contracts, debts, liens, judgments, and other obligations and liabilities.
The binding parts of the LOI should be drafted so that the seller will not continue to shop and sell the practice to another potential buyer while you are negotiating a deal with the seller and conducting your due diligence. You do not want to be in a position where you are incurring costs to conduct due diligence or other costs to acquire the practice only to find out that the seller has decided to accept another offer from another buyer. You also want to make sure that there are no major changes in how the practice will be managed between the time you sign a contract and go to closing.
Once a fully executed LOI is in hand, your due diligence starts. Through the due diligence process, we want to review the financial, corporate, and legal documents of the practice. If for the most part you are satisfied that you are interested in purchasing the practice, then you will enter into an Asset Purchase Agreement or a Stock Purchase Agreement. In most cases, you want to structure your transaction as an asset purchase rather than a stock purchase.
Your Asset Purchase Agreement should have the proper terms and contingencies so that if during the course of due diligence we find that there are issues and concerns with the practice, you will not be obliged to buy the practice, at least not without offsetting and reducing the purchase price for the issues that you find during due diligence. If you are taking out a loan for the purchase price, we also want to make sure you include a financing contingency in your Asset Purchase Agreement.
As part of our due diligence, we conduct a thorough review to determine if there are any outstanding liens, debts, and/or judgments that will affect the assets of the practice. There are many additional steps in the due diligence process that are beyond the realm of this article; for example, I usually include a provision that requires the buyer to have obtained proper credentialing from the insurance companies that the seller accepted patients. A lack of familiarity with these issues by an attorney who represents you could result in substantial losses for you.
If your due diligence is satisfactory and your financing is approved (if you are obtaining financing for the purchase price) the parties will proceed to closing.
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