Selling your practice is a significant step, which requires effective planning. Practical advice can make the difference between success and failure. This note looks at the way in which transactions may be structured and gives some practical tips to those about to be involved in a sale.
Asset sale or share sale?
If you have set up your practice as a limited company, consider whether it may be more advantageous to sell it by way of a share sale as opposed to an asset sale. A share sale is often attractive to a seller as it offers the seller the opportunity to sell the company “lock, stock and barrel” and have “a clean break.” You should seek advice from your accountant as to the most tax efficient way of structuring your sale.
Heads of agreement
The purpose of this document is to focus on the principal, financial, commercial and legal issues. It is not normally intended to be a legally binding agreement, although it is possible to have certain provisions (for example, dealing with confidentiality) to be expressed as legally binding. Advice should be taken prior to negotiation of the heads of agreement.
This relates to the buyer’s investigations and enquiries and enables the buyer to assess the potential legal, contractual and financial risks. Full disclosure at this stage is important for the seller since it will reduce the risk of significant issues arising late in the transaction at a time when considerable amounts of time and expense may have been incurred.
Sale and purchase agreement
This is the main legal document, which records the parties’ legal obligations.
An important part of the agreement will be the warranties to be provided by the seller. These are statements made by the seller and relied on by the buyer. They may relate to a wide range of areas affecting the practice, for example its profitability, condition and ownership of the assets, employees, accounts and tax.
The buyer will normally rely on the warranties given by the seller in the sale and purchase agreement. Where any of these statements need to be qualified in any way (for example, the practice has been involved in disputes, may lose key contracts as a result of the sale, has problems with the employees), the seller will normally want to make disclosures by way a disclosure letter in order to protect itself from being sued by the buyer for breach of warranty. Given the potentially wide-ranging nature of warranties, disclosure may be an important part of the transaction for the seller.
Property issues may be important, even where the practice’s premises are not significant. Where applicable, property advisers should be instructed early to avoid delays later.
Both parties will need to devote a considerable amount of their own time in a sale.
Data protection issues surrounding the handling of patient records will be a key consideration in the sale, especially as they will invariably include sensitive personal information relating to the patients (for example their physical / mental health condition, racial or ethnic origin, political opinions, sexuality or religious beliefs). Not only their information must be processed fairly in compliance with data protection legislation but also the patient’s explicit consent will need to be obtained before any sensitive data may be handed over to a third party.
The parties may wish to have a binding confidentiality agreement in place at the start of negotiations. Clearly, a seller may be disclosing commercially sensitive information to the buyer. Similarly, a buyer may be required to reveal confidential financial details to prove its ability to proceed with the acquisition.
The buyer will be committing a significant amount of time and cost and the transaction may well require a “lock out” agreement which will prevent the seller from talking to other interested parties for an agreed period.
If you are looking to sell, it is vital to take professional advice from your solicitor and accountant at an early stage.
This article has been provided by Frank Scott-Ashe from BLB Solicitors