Dental Acquisitions In Tulsa, OK
The goal of an acquisition of a dental practice is a successful transition. A successful transition should appear relatively seamless to the patients, the administrative staff and to the other oral healthcare professionals remaining with the practice.
For the buyer of an existing dental practice, whether an investor or a practicing dentist, the objective is to target a practice that produces sufficient cash flow to service the expense and debt obligations with adequate distributable cash to the owner. The advice of an experienced business law attorney will ensure all terms and conditions of the purchase are complete and well documented. The advice of an experienced accountant will ensure the practice is properly valued.
The Letter of Intent
The first document in an acquisition is the letter of intent. This document contains the basic terms and conditions of the acquisition and sale. The seller and the buyer have negotiated these general terms. The contents of a letter of intent will include the purchase price, the approximate date of the sale and the treatment of accounts receivable. Most important is the establishment of the time period for the buyer, and its consultants, to review the financial, the patient and the business records of the practice.
This established time period is known as the due diligence period.
The letter of intent also sets out the terms affecting the earnest money deposit, the conditions of its release and the application to the purchase price.
The Real Estate Aspect
There are many cases where a real estate attorney will be retained because the assets may include the land and the building where the practice is located. If there are no real estate assets, then the buyer will need the real estate attorney to review the terms of the office lease. It may become necessary to renegotiate the lease terms with the building owner.
The office lease is considered both an asset and an obligation of the practice.
The Goals of the Buyer
The overall objective of a buyer is to recover the purchase within the shortest amount of time. To achieve the maximum value of the practice is more than improving the cash flow. The recovery of the acquisition costs is also by way of expensing, amortizing and depreciating the assets. A portion of the purchase price will be allocated to the equipment, the supplies, the furniture, the goodwill and the value of the restrictive covenant placed upon the seller.
This restrictive covenant is commonly known as a non-compete clause.
When the seller is a practicing dentist, it will be important and necessary to consider a restrictive covenant to prohibit the seller from continuing to seek patients within a certain distance from the practice.
Both the business law attorney and the accountant will have significant roles in valuing the restrictive covenant and establishing the purchase price.
The Purchase Agreement
The purchase agreement will set out the final terms of the acquisition based upon the results of the due diligence and the negotiations with the seller. The buyer will also be responsible for obtaining acceptable financing for the purchase of the practice.
In addition to the non-compete covenant placed upon the seller, the seller should also be responsible for any claims against the practice prior to the sale. These claims should not be borne by the buyer, unless the buyer is fairly compensated.
When a seller is subject to a strong non-compete clause, the purchase price will increase for consideration of the seller agreeing not to compete. Any responsibilities assumed by the buyer resulting from occurrences prior to the sale will lower the purchase price. The buyer will want to be compensated for this risk.
The purchase agreement will reduce to writing all of the above terms and conditions. The closing documents will be derived from the terms of the purchase agreement.
The Best Advice
This article is meant as an overview of the general considerations a buyer needs to make when acquiring an existing practice. The best advice is to retain a trusted and recommended attorney and accountant to determine the value of the practice, and to make sure that all terms of the acquisition documents accurately reflect the terms of the purchase agreement.