Avoiding the pitfalls of practice sales and acquisitions: A spotlight on the process itselfNews
Posted by: The Probe 19th February 2020
Luke Moore – Co-Founder of Dental Elite – offers some first-hand insight into how vendors and purchasers can avoid problems during practice sales and acquisitions. Here, he considers the process itself and provides some top tips to benefit all parties involved.
Deals typically get fatigue around 8-9 months in – people lose interest and progress can slow dramatically. There is also a much greater risk of the deal failing altogether. It’s therefore beneficial for both vendor and purchaser to work with solicitors committed to working quickly and efficiently. It’s just as crucial to ensure that the bank’s solicitors receive instruction in a timely manner, which requires good communication between all legal teams involved.
It goes without saying that there is a huge amount of paperwork involved in a practice transaction. Common issues can be avoided by ensuring that the DBS (Disclosure and Barring Service) form is completed correctly and CQC countersigned. The DDQ (Due Diligence Questionnaire) also needs to be filled in carefully – any errors could reflect poorly on the business and slow the transaction down. For this reason, it’s important that a lawyer checks over the document before it is sent to the buyer. This also enables the vendor to disclose the most appropriate amount of information.
The importance of working with solicitors and accountants with specialist knowledge of the dental profession cannot be stressed enough. For example, accountants need to understand how the NHS dental contract works and why there is a lag in NHS claims in order to match the fluctuating income with the relevant accounting period correctly. When they understand the sector, they are far more likely to facilitate a smooth and efficient process.
It’s important to understand the difference between indemnities and warranties for the best outcome. (The former provides a specific outcome in a certain event, while the latter requires breaches above a de-minimus level before it can be called upon.) An appropriate disclosure letter just before completion also ensures that all relevant facts are shared and can limit the use of the warranties and indemnities as much as possible. Vendors often seek to avoid indemnities but, naturally, a buyer’s position is different.
Heads of terms
All commercial terms should be agreed in the Heads of terms. These include what the purchaser will pay, how and when, as well as how long the vendor will remain at the practice and how much they will be paid, whether the spousal practice manager will stay and tax implications for equipment. An agreement on these aspects will leave only legal issues to sort out, increasing the chances of a successful sale.
Most purchasers borrow at least some money from the bank, so caution should be applied with the presentation of a ‘cash buyer’. Adding a clause into the Heads of terms that the sale will not be delayed should bank lending be sought will help to avoid problems.
The Local Area Teams (LATs) don’t have specific guidelines so vendors should be aware that they will respond in their own time. Resolving any issues with the LAT early on is the best way to prevent transaction delays.
Try before you buy
It is not uncommon for purchasers to work in the practice before they buy it. This is strongly advised against as it can be an emotional time and the buyer may create more demands that would reasonably be expected otherwise.
We all know how long acquisition of a Performer Number can take – ensuring the buyer of an NHS practice already has one will help to prevent delays in or abortion of the transaction.
A purchaser is able to make an offer without having undergone a full credit check. It’s vital that vendors ask their bank managers to check there is real credit banking behind the offer to gain confidence that a transaction will be successful.
The London area seems to be facing serious delays with CQC applications right now – what used to take around 6 weeks could currently take up to 6 months. It’s therefore vital to book your interview well in advance. Dental Elite offers a dedicated CQC service – available to anyone selling or buying with us or not – to streamline the process and help you prepare for the interview for a seamless process. It’s also important to ensure that any incorporated practices are registered with the CQC (and bank) as such, so that the right entity is being sold.
The process of selling and buying a dental practice is intricate and therefore takes time. These are some of the main things both vendors and purchasers can do to encourage a smoother transaction.
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