So you want to buy a practice?

Keep It Legal

Kirsty Odell sets out some of the key stages to buying or selling a practice, which will keep you on the right track for a smooth transition from buyer to practice owner.

Buying a private practice will, no doubt, be an exciting time for you, but it is important to be aware of the steps involved in the purchase and to prepare yourself for the process ahead. The following are the crucial steps involved: 

1 Appoint advisers

The market is still buoyant despite Covid-19, with many potential buyers looking to invest in the private medical practice sector.  

Most opportunities are often where providers are looking to retire and have no alternative succession plans in place.  

So your first step may be to approach specialist sales agents, who will introduce you to sellers of practices that fit your requirements.  

An early approach to other intermediaries is also important. This includes your funder, your accountant and your legal advisers.  

If you do not have your funding offer ducks in a row, then this will cause transaction delays. The ideal position would be to get an offer ‘in principle’ as early as possible so you are able to make the application without delay as soon as the seller has accepted your offer.

Always instruct specialist lawyers and accountants, as they will have a better understanding of the requirements of a purchase of a medical business and should therefore be able to offer a more efficient approach.  

A key question to ask them is the best structure for you to follow for the purchase. This may be dictated to some extent by the seller’s requirements, but you also need to ensure that it is tax-efficient and structurally sound for you too, now and for the sustainability of the practice in the future. 

2Exercise due diligence

This is perhaps one of the more tedious parts of the transaction and it may cause delays depending on how organised the seller is. Nevertheless, carrying out due diligence may be the difference between buying well or paying for years of problems.  

Your legal advisers will raise a whole host of questions about the business and the seller will need to respond to those and provide supporting documentation. 

Your lawyer will then provide you with a report on the due diligence received and raise some further follow-up questions. It allows you and your legal advisers to investigate the business and draw out any possible issues that you need to be aware of.  

These include, for example, any patient complaints, compliance issues or employee disciplinary issues or grievances. Being made aware of these things gives you the opportunity to decide whether to address them or look elsewhere.

It may take the seller a little bit of time to collate the documentation requested in the due diligence, which is time for you to ensure that you have satisfactory funding terms and Care Quality Commis­sion (CQC) registration.

3Register with watchdog

Whether a new CQC registration is required will depend on the structure of the transaction and whether you are already registered.  

So it could simply be a matter of adding a new location to an existing registration or updating the details of registration for a company that you are buying.  

If a new registration is required, then you should apply for this as soon as possible. In the first instance, a CQC countersigned check with the Disclosure and Barring Service will be needed. Once that is received, the application for registration can be submitted.  

Currently, applications are taking a considerable amount of time to be processed, so it is strongly recommended that you make this a priority at the start of the transaction. 

4Prepare sale documents

Your legal advisers will draft and negotiate the sale documentation with the seller’s legal advisers. 

The key document will be a business transfer agreement or, in the case of a purchase of shares in a company, a share purchase agreement.  

This document should address:

 Protections required because of matters arising from the due diligence;

 Warranties and indemnities which are intended to protect you from certain liabilities that may arise post-completion; 

 Restrictive covenants to be imposed on the seller post-completion to seek to protect the goodwill of the practice that you are purchasing; 

 Funding documents, such as loan agreements, facility letters and debentures.

Depending on the structure of the transaction, there may be several other ancillary documents to agree as part of the process. 

These may include, for example, any property documentation to transfer an interest in the premises, employment/associate contracts where the seller is staying on at the practice after completion, and company-related documents if any entity involved in the transaction is a company. 

5Draw up staff contracts

It is most common that the Transfer of Undertakings (Protec­tion of Employment) Regulations (TUPE) will apply where you are buying a practice.  

You will need to ensure that you are aware of the terms of the existing staff contracts, as the employees will transfer to you on their existing terms. You will also need to engage and possibly consult with the employees about your proposed takeover of the business.  

Your legal advisers will be able to guide you on this process and your legal requirements under TUPE. 

If you are buying a company, then the staff will just continue to be employed by the company you have purchased. 

You will also need to consider any self-employed members of staff and negotiate new contracts with them with effect from completion, as their contracts are not subject to TUPE. 

This summary provides you with some guidance of the process of buying a private practice. With specialist advisers, you will be guided through the transaction.

Kirsty Odell (right) is an associate at Hempsons