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Are you interested in selling or buying a healthcare practice? If so, you will want to keep in mind the following key aspects of a deal.

1. Pick the Right Type of Sale:

A sale can either be an asset sale or an equity sale. During an asset sale, the buyer purchases specific business assets, such as equipment or inventory. On the other hand, an equity sale is when the buyer purchases the entire legal entity, becoming the legal owner.   

Both types of sales have benefits and drawbacks. Asset sales allow for flexibility, as the buyer can select which assets or liabilities to buy. However, asset transactions can often be more complex due to individual asset transfers. Conversely, equity sales can be less complex, but the buyer may be at a disadvantage due to transferring all the liabilities of the business along with all the assets. No one type of sale is strictly better than the other and deciding which type to select will depend on the parties’ specific needs.   

2. Conduct Initial Screening:

Conducting an initial screening allows the buyer to gain an understanding of where the entity stands. For example, the buyer can look for any previous transaction documents or recent public filings that may impact the transaction.

Buyers and sellers can both check for compliance during this period. Some key compliance considerations are (1) Medicare assignment; (2) payor network agreements; (3) HIPAA compliance; (4) government investigations or Qui Tam actions involving the Stark Law; (5) Anti-Kickback Statute, or the False Claims Act; and (6) billing practices.

It is also important to determine what current state or federal licenses and payor assignments the entity has. Often, licenses do not transfer automatically with a change of ownership. Buyers and sellers will both need to consider what licenses need to be transferred or applied for during or after the deal is completed.  

3. Sign a Non-Disclosure Agreement:

Non-disclosure agreements are signed prior to initial information being shared or negotiating the deal structure. These are legally binding documents that protect sensitive or confidential information. This step is vital to ensure open and candid communication between parties.

4. Draft a Letter of Intent:

The Letter of Intent (“LOI”) is a document that outlines the key preliminary terms of the deal. While the LOI is typically non-binding, parties may opt to include some explicitly binding clauses, such as a confidentiality clause.

Key information to include in the LOI are the transaction type, purchase price, payment structure, the due diligence period, and closing conditions.  

5. Participate in Negotiation and Due Diligence:

Negotiation is a key phase of the deal where parties will have the opportunity to finalize legal agreements and determine if the deal will be completed. During the negotiation phase, parties will want to discuss purchase price adjustments, payment structure, indemnification terms, working capital adjustments, escrow or holdback provisions, employment agreements for key executives, and the timeline of the deal.

Similarly to the negotiation phase, the due diligence period is a vital part of the deal, allowing an opportunity for the parties to verify the deal and its terms. This period allows both parties to be confident in what they are buying or selling. During the due diligence period, parties will want to consider the current company overview, financial statements, pending legal matters, liabilities or debts that the entity has, and any potential compliance risks.   

6. Draft the Transaction Document:

The transaction document is the structure of the transaction and lays the groundwork for the deal. This document should include the purchase price and payment terms, representations and warranties, any healthcare specific conditions, non-compete agreements, indemnification clauses, and closing requirements.

7. Complete the Closing Checklist:

The closing checklist states what documentation parties must bring to closing. Key documents to include in the closing checklist are (1) the purchase agreement; (2) disclosure statements; (3) licensing agreements; (4) bill of sale; (5) change of ownership applications or approvals; (6) notices to vendors, employees or patients; and (7) real estate documents, such as lease assignments. Having all these documents at closing can help ensure a smooth finish to the deal.  

8. Calculate Post-Close Adjustments:

Often, post-close adjustments need to be made. During the transaction, a buyer may sometimes “hold-back” a certain amount or percentage from the purchase price to cover any amounts that were incurred before the closing date.

After closing, the parties may conduct a “true-up” to fix the difference between the estimated and actual figures. The parties will determine how much the buyer had to spend to cover costs incurred prior to closing. If the buyer paid more than the hold-back amount, the seller would pay the difference. However, if the buyer paid less than the hold-back amount, the buyer would give the remaining money to the seller.

If you have any questions about how to structure or complete your healthcare transaction, please contact BMD Member Jeana Singleton at jmsingleton@bmdllc.com or Attorney Amanda Kilway at ackilway@bmdllc.com.