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Before You Sell Your PT Clinic: Part 5 - The Transaction Terms - Physical Therapy Products
Before You Sell Your PT Clinic: Part 5 – The Transaction Terms
Posted by Deborah Overman | Jan 25, 2018 | Best Practices, Practice Management | 0 |
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:
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 are based on differences in financial measures. For example, it could be net working capital, cash at closing, or accounts receivable.
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.
Luis de la Prida, MBA, CM&AA, is a partner at New York Business Brokerage Inc, an M+A advisory firm that specializes in small to mid-market companies. For more information, contact PTPEditor@medqor.com.
Read more in our series about how to sell your physical therapy center.
Part 4: The M&A Process
Part 3: Who’s Buying?
Part 2: Get the Basics Down
Part 1: How to Compete Against Large PT Buyers
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