Veterinarians are healers, not salespeople. That’s why it’s easy for them to get taken advantage of or low-balled veterinary clinic brokers in a practice sale. As a way to protect yourself and make sure you are being dealt with fairly, there are three documents that you should insist on during the due diligence and negotiation processes. These include a letter of an intent, a non-disclosure agreement (NDA), and a sales agreement. Let’s go over these documents and outline what you should pay attention to when signing each of them.
The Term Sheet or Letter of Intent (LOI). This document outlines the agreement that both seller and buyer expect to make and establishes the terms of the deal. You can think of it as a draft contract framework. Here are some key points that the letter of intent should.
Lock-in the purchase price. Leaving it vague invites the buyer to try to finagle a lower offer during the due diligence. Allow some leeway for minor negotiations, but stand firm on the minimum amount you’re willing to accept.
Stipulate that the amount in full will be paid to you after closing. Try not to accept payments over time if possible. The seller may not get paid in full after closing due to the partnership model, earnout, or seller financing. Even though these reasons have an upside, they carry certain risks for the seller.
Pay attention to the employment terms, as failing to agree on those can complicate the deal further.
Have your attorney review the LOI. It’s better to invest the time and money upfront than to discover deal-breaking surprises at closing.
The Non-Disclosure Agreement (NDA). Protecting the seller’s confidential data is essential as the deal involves sharing such information between parties. For this purpose, you and the buyer should sign a mutual NDA.
Make sure that the document covers everything that you want to protect to ensure your confidential data will not be disclosed.
Seek a long-term NDA. If the buyer will not sign an agreement for an indeterminate amount of time, at least try to make sure that both parties will not disclose any confidential information for a few years.
If negotiation fails at later stages, ask the buyer not to solicit your employees for a set period as the buyer may obtain their contact information during the due diligence process.
The Sales Agreement. Generally, this is the final agreement between parties, before closing. This agreement comes in three forms: an asset purchase agreement, a stock sale agreement, or a merger agreement. Regardless of which form is involved, it includes various vital provisions and you should carefully review those with your lawyer.
Representation and Warranties. This is a standard clause of all sales agreements. Representation attests that you have been honest about the practice you are selling. It is what you say it is. Warranties means that if what you have described turns out to be false, the buyer has some recourse.
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