If you decide to sell your practice or affiliate with another entity, here are some simple tips to consider in conducting the transaction from a seller’s perspective.
While there is no surefire way to foolproof a transaction, focusing on these key areas should help mitigate your risk as you navigate a transaction during this current economic climate.
1
BE FULLY TRANSPARENT IN YOUR DUE DILIGENCE DISCLOSURES
Sometimes sellers are concerned that by disclosing too much, they risk jeopardizing their deal. However, in our experience, it is better to disclose an uncomfortable subject than wait for the buyer to find out after closing.
This is particularly true during this current time when a whole host of novel issues must be considered as a result of COVID-19. This includes everything from compliance with temporary waivers of federal and state practice regulations to new legislation and federal aid programs directly tied to pandemic response (i.e., PPP, FFCRA, PRF).
Each of these items have the potential to affect the post-closing operations of the practice, and, therefore, must be considered in the context of the transaction prior to closing.
2
DO NOT ASSUME UNNECESSARY RISK
Once you have placed your cards on the table via due diligence, the next step is appropriately addressing any significant issues in the definitive transaction documents.
Typically, this is done through a combination of representations, warranties, covenants, and price adjustments. From a seller’s perspective, it is important that any items to which you will be held contractually responsible are those of which you have actual knowledge and, therefore, have been in a position to influence the outcome prior to closing.
Do not be held responsible for items over which the buyer will be assuming control, particularly during a period in which the future holds many unknowns.
3
LIMIT PURCHASE PRICE ADJUSTMENTS
Buyers often try to avoid uncertainty by building in an element of risk mitigation via purchase price adjustment mechanisms, such as working capital adjustments, earn outs, and escrow arrangements. This is particularly the case during a time as unsettling as this.
From a seller’s perspective, you should make sure that any adjustment or holdback amount is tied directly to a tangible outcome that is not dependent on the actions of third parties and over which the seller can maintain a reasonable level of post-closing control.
4
NOTIFY ALL RELEVANT LENDERS AND CONTRACT PARTNERS
In almost every deal, third-party lenders, lienholders, contract parties, etc. must be legally notified of the pending transaction. This is particularly important at the current time because many of the new COVID-19 relief funding programs (i.e., PPP, PRF, Medicare Accelerated Payments) have default and/or notice mechanisms triggered by a change of control transaction.
To avoid getting crosswise with these measures, contact the affected third parties as soon as possible to begin working through these consent items with time to spare before closing.
Still unsure?
Still trying to decide if selling your medical practice is what’s in your best interest at the current moment? Read The Future of your Radiology or Imaging Practice, Is 2021 The Year to Sell.
Doug Griswold
Doug is always available for clients and is driven by a sincere desire to make their lives easier by solving problems as efficiently as possible.
Representing radiology and other health care providers in a variety of business transactions, Doug focuses his practice on mergers and acquisitions, including asset and stock purchase transactions and joint venture arrangements.
Doug also works with radiology providers on physician employment and equity arrangements, professional service arrangements, state licensing and certification issues, billing and coding matters, and compliance/ regulatory guidance.
For more information, please visit his online bio.
