Letter of Intent – 101
Negotiating a Letter of Intent (LOI) is a crucial step when selling a dental practice. An LOI outlines the preliminary terms and conditions of the sale, serving as a roadmap for the formal agreement. While except for a few key terms, it is generally not legally binding, but it sets expectations for both parties and helps avoid misunderstandings later in the process.
The LOI typically includes key elements such as the purchase price, payment structure, and the allocation of assets (including goodwill, equipment, and real property). It also addresses contingencies like financing, due diligence, and regulatory approvals, which are critical in healthcare transactions due to compliance requirements and licensing issues.
One of the most important negotiation points is the purchase price, which often reflects the practice’s market value, goodwill, and any outstanding liabilities. The seller should ensure that the price is supported by a professional valuation, while the buyer may request earn-out provisions or adjustments based on the practice’s future performance.
Another significant aspect of the LOI is non-compete clauses. Buyers often seek to limit the seller’s ability to start a competing practice within a certain geographic area and timeframe. Sellers should carefully review these terms to avoid restrictive agreements that could impact future career opportunities.
Lastly, timelines are essential. Sellers should establish clear milestones, such as due diligence and the final closing date, to ensure the process progresses smoothly. Engaging experienced legal and financial advisors is key to negotiating favorable terms and protecting both parties’ interests in the transaction.
While the majority of terms in an LOI are non-binding, meaning they are not enforceable and can be renegotiated later, an LOI will have a few enforceable terms. The most common is a “no-shop” or exclusivity clause. This prevents the Seller from talking to other potential buyers for a specified period of time while the parties work through the purchase agreement and financing. Another common enforceable provision is a confidentiality provision. This is a requirement that the parties, primarily the buyer, agree that they will maintain the confidentiality of financial and other proprietary records of the other party that they have access to in connection with their due diligence.
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