Selling or Buying a Dental Practice, Part 3 – Dentistry Magazine

Published in the Dentistry Magazine 26.11.09 Opens external link in new window

Dentistry magazine and Hempsons dental team are offering free legal help to all readers. Here, in the last of three articles, Ross Clark looks at the concluding stages of a sale or purchase.

The Sales Process

Once the key terms have been agreed, the legal process can commence. The first stage in this will be due diligence, where the acquirer seeks a detailed understanding of the practice being acquired.  The purchaser issues a questionnaire, which requires the seller to answer questions and provide supporting documentation on a range of issues such as the assets of the practice, its employees and associates, any performance issues, the property from which the practice operates, etc.  This can be a time-consuming and daunting task for a seller, but it is vitally important that it is done properly and that copies and a detailed index of all answers and supporting documentation are maintained.

Of particular importance for the purchaser will be the transfer of the GDS Contract.  There is a means of achieving the transfer, without the PCT having a right of objection, involving the creation of a partnership between the buyer and the seller.  In most cases, the seller will then retire from this partnership shortly after completion, and, after the appropriate notices have been given to and received from the PCT, the contract will end up in the hands of the purchaser.  However, the GDS Regulations are complex and it is vital that the correct notices are given within the correct timescales and that the partnership is correctly constituted. The partnership can be structured so that the selling dentist has limited liability under the partnership and the specialist advice we provide on this aspect of a sale is often fundamental in structuring the transaction correctly.

Once the due diligence process is complete, or during the due diligence process if the transaction needs to complete urgently, the sale and purchase agreement is drafted and negotiated.  The key provisions of this include:

  • Price – This will be important to both parties and the price, and when it becomes payable, need to be clearly defined.  In some transactions, where there are concerns about UDA shortfall and BSA clawback for example, a retention from the initial price is sought.
  • Unfinished courses of treatment and UDAs – The division of responsibility for unfinished courses of treatment and entitlement to payment for UDAs need to be clearly provided for.  The buyer also needs to be protected against post-completion clawback by the BSA that relates to pre-completion overpayments to, or under performance by, the seller.
  • Restrictive Covenants – The seller will be asked to give certain undertakings to protect the goodwill of the practice being sold, for example preventing the seller from setting up a competing practice or enticing the employees or associates to leave the practice.
  • Warranties – The seller will be asked to give warranties (statements that certain matters are correct). For example, the seller will be asked to warrant that all of the assets are owned by the seller, that the seller is not in dispute with the PCT or BSA, that there are no investigations outstanding against the practice, that full details of the terms and conditions of employment or engagement of all employees and associates have been provided.  If any of these statements prove to be incorrect, then the buyer will be able to sue the seller for breach of warranty and recover the loss suffered by the buyer.  This is therefore an important and complex area of the agreement for both sides.  When acting for the seller, important protections are drafted into the agreement, including the disclosure of all information supplied during the due diligence stage. A buyer cannot claim for breach of warranties to the extent that they were aware of the matter from the due diligence replies and document supplied to them and this is why it is particularly important to maintain copies and an accurate index of all information supplied during that stage of the process.

The documentation can seem daunting, but this is where an experienced lawyer is vital as, not only will they ensure that the document is drafted and negotiated to protect the party they are acting for, they should also be able to clearly explain and summarise the contents of the documents and the key issues for their client.

The transaction then completes (usually on the day the GDS Contract transfers), the legal work is completed, the seller can relax and enjoy the fruits of their labour but, for the buyer, this is the start of the real task of making the acquisition or merger work.