The purchase of any business in the dental sector can prove to be a daunting process, particularly for first time buyers. The documentation will be laden with both sector-specific and legal jargon. This is why it’s imperative that you instruct a specialist lawyer who can provide advice with a commercial, yet “no nonsense” approach. There are five main steps within the transaction process: heads of terms, due diligence, consents, contract negotiation and completion/post-completion.
Heads of Terms
The first major stage of any dental transaction is to put a preliminary agreement in place outlining the key agreed terms of the transaction (particularly where there is an agent involved), commonly known as a heads of terms document. Whilst not legally binding in its entirety, there can be express provisions incorporated into this document which are intended to be legally binding. Examples of these provisions include confidentiality, exclusivity, and terms governing the release of any holding deposit where applicable. When purchasing via an agency, it is likely to be in the agent’s standard form document. However, don’t be fooled by its apparent simplicity. It is worthwhile to instruct your lawyer in the early stages to review this document.
Due Diligence
Once the heads of terms have been agreed and signed, the wider transaction begins to progress. The next stage is the due diligence process. The buyer’s lawyer raises certain legal enquiries into the target business and its affairs, known as a due diligence questionnaire, and the buyer’s accountant undertakes a separate financial due diligence process. Due diligence is undertaken to ensure the business operates as it has been marketed, and to ensure there isn’t anything which is likely to materially affect the value down the line. This process can be carried out throughout the transaction process all the way up to exchange/completion in some cases.
Consents and Ancillary Matters
By this stage, due diligence has commenced, and any potential points of concern have been noted for the drafting of the main sale contract. It is now time to ensure all necessary consents and approvals are in place where applicable. These can include ensuring the correct CQC application is submitted, the necessary NHS approval is granted, landlord’s consent is given, the relevant director and shareholder approvals are properly documented etc.
Contract Negotiation
Once all of the above has been satisfied, the next step is to document the terms of the agreed deal in a sale and purchase agreement. This is a document which can total 100 pages or more, and includes all main terms of the deal, as well as various warranties and covenants, and bespoke provisions depending on the nature of the practice (NHS provisions, CQC provisions, potential retentions for defective treatments/NHS underperformance, restrictions on the seller post-completion etc). It may also be appropriate to insert indemnities into the agreement, depending on the outcome of the due diligence process.
Another major document to be prepared and reviewed in tandem is the disclosure letter. This is a document which outlines facts and circumstances which are inconsistencies with the warranties in the agreement. If a seller cannot stand by a warranty as it is worded in the sale and purchase agreement, they should formally disclose against it to protect themselves from a warranty claim. Warranties and disclosures should be reviewed side-by-side.
Completion and Post-Completion
The documents have been agreed, duly executed, funds have been transferred, and completion has occurred. Congratulations! Whilst you are now the proud owner of your new business, there are certain post-completion obligations to comply with. For example, if a GDS contract has been transferred via the traditional partnership route, additional applications need to be made at the CQC before a seller can be removed from the contract, Companies House filings may need to be made, and there may well be additional taxes to pay (Stamp Duty / Stamp Duty Land Tax).
The transaction process can seem like a legal minefield, therefore it is important you obtain the correct legal advice. It takes a qualified expert with years’ of experience to do it right and you are far less likely to encounter post-completion issues if you instruct an expert from the outset.
Please contact our Corporate Law team by email or phone 0113 207 0000 if you need any assistance in understanding the transaction process.