Keep It Legal
Whether you’re looking to retire or planning your next venture, it is essential you make the necessary preparations before you start the process of selling a private practice. Kirsty Odell sets out some of the key stages to any transaction which will keep you on the right track for a smooth transition.
Step 1 – Valuation/agents
Professional and specialist valuers/agents can help you achieve the full market value for your business.
Unlike with NHS medical practices, this will include valuing the goodwill in a private practice.
As with any sale, your practice is only worth ‘what someone is prepared to pay for it’. It may not be appropriate to rely on the written-down valuation of the business shown in your accounts, which may too low or too high depending on other circumstances.
Your valuers/agents should share comparative market evidence with you, as they will be familiar with what sale prices have been achieved in other similar transactions.
They will advise you how best to market your practice to help you secure an offer.
Step 2 – Appointing advisers
As well as valuers/agents, you should also approach accountants and lawyers.
In terms of your accountant, this initial approach will be to ensure that the financial information for the business is completely up to date and that the business accounts are presented in the most appropriate way to show its highest value.
Reduce tax liability
Also, restructuring the business may enable you to maximise its value and reduce your tax liability. For example, if the business is operated through a company, the accountant will advise on whether it is best to proceed with a share or asset sale.
Your accountant will continue to play a vital role in the transaction.
As lawyers, we will be able to advise if there are any pre-sale requirements to get the business ready for sale. For example, we advise if you need to engage early with any third parties such as landlords or banks to avoid any delays in the transaction at a later stage.
We always recommend that you instruct specialist advisers, as they will have a better understanding of the requirements of a sale of a medical business and should therefore be able to offer a more efficient approach, even if it means changing from your previous advisers.
Step 3 – Due diligence
This is perhaps one of the more onerous parts of the transaction and it may cause delays depending on how well organised your business matters are.
The buyer’s legal advisers will raise a whole host of questions about the business and you will need to respond to those and provide supporting documentation. A buyer will not proceed without receiving satisfactory answers.
Your replies will be treated as ‘representations’ and this means that if anything is subsequently discovered to be untrue or misleading, the buyer may have a claim against you for misrepresentation.
It is therefore essential for you to take your time in answering the questions as fully and as accurately as you can – and to provide all of the supporting documentation available. You should prepare yourself for a long list of questions – both on the corporate side and also about the property arrangements.
By instructing lawyers well ahead of the sale, you will be able to be prepared, which will ensure that the momentum of the sale is maintained, with less opportunity for the buyer to negotiate down the price.
We will review your responses before sharing them with the buyer and their legal team, and help you to phrase the replies in appropriate legal language that will seek to limit your exposure.
Try to avoid causing delays in replying to inquiries raised in due diligence by being prepared, so that you are able to keep the pressure on the buyer, who should be obtaining satisfactory funding and Care Quality Commission registration – if required.
Step 4 – Sale documents
The buyer’s legal team will draft the sale documentation and negotiate the terms with your legal advisers. The key document will be a business transfer agreement or, in the case of a sale of shares in a company, a share purchase agreement.
A buyer will include clauses to seek to limit their liability post completion – where such liability relates to your acts prior to completion or relates to anything that you should have but didn’t disclose prior to completion.
The buyer will also, no doubt, include restrictive covenants to protect the goodwill of the practice.
Depending on your intentions post sale, you may wish to negotiate the terms of these restrictions. When negotiating for you, we would seek to limit your liability with financial caps and time limits on claims against you.
Another important document we will prepare is a Disclosure Letter.
This goes hand in hand with the warranties that are included in the sale document. Warranties are statements of fact about the business.
If any of those statements are untrue, you should disclose against them. The Disclosure Letter is the document by which you make specific disclosures against the warranties, and includes all the information you provided in reply to the due diligence inquiries.
Depending on the structure of the transaction, there may be a number of other ancillary documents to agree as part of the process.
This could include, for example, any property documentation to transfer an interest – such as a lease – in the premises, employment/associate contracts where you are staying on at the practice after completion and company-related documents if any entity involved in the transaction is a company.
Step 5 – Staff
It is most common that the Transfer of Undertakings [Prot-ection of Employment] Regul-ations (TUPE) will apply where you are selling a practice.
This means that you will need to inform and possibly consult with the employees about the sale. We will be able to guide you on this process and advise you what your legal requirements are under TUPE.
If you are selling the shares in a company, then the staff will just continue to be employed by the company, so TUPE will not be applicable.
This short summary provides you with some guidance of the process of selling a private practice.
If you prepare well ahead and have specialist advisers to guide you through the transaction process, you should sell your business at the best price available without any unexpected comeback afterwards.
Kirsty Odell (right) is an associate at Hempsons solicitors