Preparing to buy a dental practice may seem like a daunting task. There are many considerations, many of which usually require an expert opinion and guidance. Buying a dental practice involves legal, financing, real estate, and accounting expertise, at the very least, to ensure a smooth deal with the buyer being protected. Here’s what to consider:
Buying a practice usually means buying the assets of the practice, rather than the corporation itself. In any event, the buyer is taking a significant financial and legal risk and just like any other purchase, you want to make sure that you are getting what you paid for and not any (or at least as little as possible) of the baggage. Every dental transaction should include a well-drafted and thorough purchase agreement which includes substantial representations and warranties by the seller, thorough lists of included and excluded assets, terms addressing restrictive covenants, and disclosures about any potential liabilities affecting the practice. In addition, some transactions might require a portion of the purchase price to be seller financed. In that case, there will be a need for a promissory note and security agreement. As the deal progresses, there might be a need for additional documents to cover an assignment of rights for certain licenses, contracts, and other. Among other things, the final document signed includes a bill a sale, which is like a receipt for the buyer evidencing the sale of the assets.
Many physician groups and health care companies will enter the market at some point to sell their business. In the rare case, the selling group will already have a buyer who is ready and willing to pay and close on the business sale. More often than not however, most sellers will utilize the services of a business broker to help find a suitable buyer, and will compensate the broker on a commission basis upon closing. Unlike real estate closings, whereby the main concern is the title of the property being conveyed, medical practice sales require much more detailed representation on all aspects of the business, including but not limited to, real property, existing contracts, existing patients, and medical equipment.
Before signing a business broker listing agreement, ensure that the following points are considered to avoid potential pitfalls:
Private money (e.g. private equity) is in full swing purchasing medical practices with large profit margins (e.g. dermatology). This is NOT the same thing as when physician practice management companies (PPMCs) bought practices the 90s. Back then, the stimulus for the seller was (a) uncertainty re practice profits in the future, and (b) the stock price. Selling practices got some or all of the purchase price in stock, with the hopes the purchasing company stock would far exceed the multiplier applied to practice “earnings” (the “multiple”). Buyers promised to stabilize and even enhance revenues with better management and better payer contracting. If the optimism of the acquiring company and selling doctors was on target, everyone won because the large stock price made money for both the buyer and seller. The private equity “play” today is a little different.
Today’s sellers are approaching the private equity opportunity the same way they did with PPMCs, except for the stock focus since most private equity purchases don’t involve selling doctors obtaining stock. Sellers hope their current practice earnings will equate to a large “purchase price.” And they hope the buyer have better front and back office management that will result in more stable and even enhanced earnings. And for this, the private equity buyer takes a “management fee,” which they typically promise (though not in writing) to offset with enhanced practice earnings.
Health law is the federal, state, and local law, rules, regulations and other jurisprudence among providers, payers and vendors to the healthcare industry and its patient and delivery of health care services; all with an emphasis on operations, regulatory and transactional legal issues.