What to expect when buying a practice

May 25, 2012

Buying a practice is a big commitment. Find out what will happen if you take the plunge.

When you buy a practice, the big issues are what to pay, how to structure the purchase, and how to pay.

The amount you pay will depend on what you are buying. The price typically consists of the value of a practice's fixed assets plus a little extra, and even more if the practice generates income from services the selling doctor does not personally provide.

So, what can you expect when you buy a practice? Generally, the process involves a letter of intent, various legal documents, and negotiation.

LETTER OF INTENT

Before you jump into a complex transaction and pay lawyers lots of money, "rough out" the points of the deal in a letter of intent. This non-binding document will be a few pages long and will describe the guts of the transaction, including:

LEGAL DOCUMENTS

Your documentation will depend on the structure of your purchase.

In an asset sale, you can expect to see an asset purchase agreement, a promissory note (if payments will be made over a period of time), a security agreement (if there is a promissory note), a noncompete agreement, and an employment agreement for the seller (if the seller will stay on).

For a stock purchase, you will have a stock purchase agreement, plus a few other, more minor, documents.

Key transaction documents are representations and warranties, which are basically promises made by the seller about the practice (a buyer will want loads and loads of them) and indemnification provisions, which essentially require a seller to pay a buyer for any harm-which relates to the practice before the purchase-that comes to the buyer.

Noncompete clauses often are essential stipulations of a practice purchase. You don't want the seller hanging around soliciting patients or practicing across the street. Generally, terms run 2 to 5 years, and their geographic scope depends on the market where the practice is located and its specialty.