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Thinking of Buying or Selling Dental Assets?

By February 13, 2011June 27th, 2023Buying a Practice, Selling A Practice

This is the first of a series of blogs about buying and selling the ASSETS of a dental practice (as opposed to the shares of a dental practice).  I’ll be discussing a lot of the terms and conditions that you would typically find in an asset purchase agreement, so you may become inundated with a lot of legal mumbo-jumbo (but I’ll try to make it as clear as possible).

Letter of Intent

Before you even start to prepare the asset purchase agreement, you should have a letter of intent.  This is generally a non-binding letter, but it may have certain binding provisions (e.g. relating to things like deposits, or exclusivity, etc.).  The idea behind the letter of intent is to outline the nuts and bolts of the asset purchase agreement which is to come. It will cover things like:

  • Assets to be purchased (i.e. which assets are included in the sale);
  • Purchase Price (i.e. how much is being paid for the assets; this may be determined based on an independent valuation/appraisal);
  • Closing Date (i.e. when the transaction is set to close);
  • Due Diligence (i.e. the parties will need to take some time to review the other party and the assets that are being sold to ensure that they are as legitimate as possible)
  • Confidentiality (i.e. the parties are to keep the negotiations and agreements confidential);
  • Restrictive covenants like non-compete, non-solicit clauses (i.e. to restrict or prevent the seller from competing in the business or soliciting the employees and/or customers of its old practice);
  • Lease (i.e. the landlord’s consent may be needed in order to assign the lease to the Purchaser; certain terms of the lease may need to be renegotiated);
  • Conditions (i.e. in order for the deal to go through, certain conditions must first be met – such as financing, a review of documentation concerning the seller and the assets, a consent from the landlord, entering into a confidentiality, non-compete, non-disclosure agreement, etc.);
  • Deposit (i.e. will there be a deposit paid with the letter of intent and will it be returned or forfeit under certain circumstances if the transaction does not close on time?)
  • Termination (if the agreement of purchase and sale is not completed on time, then how can the parties terminate the agreement and what are the consequences of doing so?)

Now, even though letters of intent are non-binding in nature, there are certain provisions that may be binding.  These may include confidentiality clauses, provisions dealing with the deposit (e.g. it will be forfeit in certain circumstances if the purchase and sale agreement doesn’t close on time because of X), or clauses dealing with exclusivity.  The latter basically means that, during this period of due diligence, and as the parties work towards an agreement of purchase and sale, the seller will not approach other parties to do a deal with them at the same time.

In the next blog, I’ll start getting into the actual asset purchase agreement.

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.