The process of finding a buyer typically requires the seller to provide potential buyers with confidential information regarding the business so the interested parties can evaluate whether the selling group is even of interest and the amount that they will be willing to pay. However, the selling practice should only provide this confidential information after potential buyers have signed nondisclosure agreements.
Ultimately, the process will lead to the submission of specific proposals from interested parties. Typically, this results in the seller and the selected buyer entering into a letter of intent, a statement of key terms for the proposed transaction. Letters of intent are largely not binding and are subject to the satisfaction of conditions, such as the negotiation of definitive written agreements. Typically, in this phase of the process, the basic structure of the transaction, the purchase price, and the manner of payment are determined.
In almost all sale transactions, the buyer will conduct a review and investigation of the seller’s business. The purpose of this review is to confirm the information previously provided by the seller and to allow the buyer to gain a thorough understanding of the business to determine whether it is truly willing to buy the business on the terms identified in the letter of intent. The buyer will want to confirm that it is not going to inherit any unexpected liabilities or problems, such as healthcare regulatory issues or lawsuits. To comply with the information requests from the buyer as it conducts its due diligence review, the seller will be required to assemble many documents and voluminous amounts of financial and other information. The burden of providing this information to the buyer will be substantial and could distract management from their day-to-day duties of running the practice.
Upon completion of the due diligence process, the buyer will either confirm that it is willing to move forward with the transaction “as is,” or, if the due diligence review reveals troubling information, the buyer can either demand changes to the transaction (such as a reduction of the purchase price) or be unwilling to proceed with the transaction altogether.
Negotiating Definitive Agreements
The parties will need to negotiate and agree on certain definitive written agreements, which will govern the transaction. First and foremost, this will include a purchase agreement, such as a stock purchase agreement or an asset purchase agreement. In addition, there may also be various ancillary agreements, such as noncompetition agreements between the buyer and the owners of the selling practice and new employment agreements for the sellers.
Typically, the negotiation of definitive agreements proceeds in parallel with the buyer’s due diligence review.
At the closing, both sides will sign numerous documents, including those necessary to transfer ownership of the purchased group to the buyer, as well as all ancillary agreements and other documents needed for the transaction. Once signatures have been obtained and exchanged between the parties, the transfer of title will occur and the buyer will tender the purchase price.
Although the vast majority of the work associated with the transaction will terminate upon the completion of the closing, certain aspects of the sale will require some attention after the closing. For example, there may be purchase price adjustments based upon the final balance sheet or net working capital position of the seller’s business as of the closing date. Typically, these adjustments are addressed in the months following the closing. Also, if any indemnification claims are brought, the parties will need to address those claims and reach a resolution.