By Luis de la Prida, MBA, CM&AA
Before you sign on the dotted line to sell your physical therapy center, it’s important to understand some merger and acquisition (M&A) lingo. If you don’t understand the lingo, here’s what you could risk:
- You won’t be able to sell your practice
- It takes longer to sell the center than it should
- You incur expenses to hire accounts and lawyers, only to turn down an offer later in the process
Let’s dive into the typical terms in a transaction:
Structure of the Deal
Most deals are structured as an asset purchase, stock purchase, or merger. How the deal is structured impacts taxes, the value of your center, and key steps to the transaction process.
To encourage you to sell, a buyer will want to offer you something (otherwise known as a “consideration”). This could include: cash, buyer’s stock, “seller notes,” earnouts, or other deferred payments.
Purchase Price Adjustments
Purchase price adjustments are based on differences in financial measures. For example, it could be net working capital, cash at closing, or accounts receivable.
Reps and Warranties
These are terms that the seller represents and/or warrants to the buyer. Its purpose is to cover areas of potential liability for the buyer. It serves the following functions: due diligence, certainty of closing, de facto purchase price adjustment, qualifiers, and carve outs.
Every transaction has closing conditions. Some of the common closing conditions include: simultaneous sign and close, sign purchase agreement, pre-close, and exchanging funds for later.
The seller has to make certain covenants—or promises—to the buyer. This includes: non-competes, non-solicitation, and other post-closing covenants.
Certain indemnifications are made during a transaction. These indemnifications require the seller to insure buyer, effectively reduce the purchase price to the seller, and inject uncertainty of proceeds.
Read more in our series about how to sell your physical therapy center.