Managing a profitable dental practice has never been as challenging as it is today. Dental practitioners may be interested in being acquired by a group or Dental Service Organization through a merger and acquisition. Independent practices have many opportunities to merge with an existing dental group platform.
If you are considering merging with an existing practice or acquiring an independent one, you’ll benefit from working with an experienced attorney. The dental merger and acquisition process can be complex, challenging, and legal conflicts can arise. The experienced attorneys at Mahan Dental Law are here to help. We provide nationwide legal representation for dentists and dental practices. Contact Mahan Dental Law today to schedule a complimentary initial consultation.
The Merger and Acquisition Process
During a merger and acquisition in the dental industry, one dental practice gains control of another dental practice. One business may purchase another to leverage its assets and operations or add to its portfolio. Generally, larger dental practices will purchase smaller ones, but in some cases, a dental practice may purchase a similarly-sized practice. Acquisitions can be hostile or friendly. During a friendly acquisition, both dental practices cooperate and negotiate the terms of the merger.
One party’s attorney will draft a dental practice or asset purchase agreement when they’ve agreed on all important terms. The dental practice purchase agreement should include provisions that foresee issues that could arise in the future. It should also address the unique considerations of the particular dental practice acquisition. There are several reasons why many dental practices go through the merger process, including the following:
- The dental practice would like to start providing a new service that the acquired practice offers
- The dental practice may want to increase its patient base
- A merger and acquisition could help both practices reduce costs by consolidating medical equipment and certain services
- Expanding geographically by purchasing a practice in another location
- Create more opportunities for the dental practice
- Raise employee engagement
- Create a more patient-centric organization
What to Expect During the Mergers and Acquisitions Process
The mergers and acquisitions process generally involves a series of legal agreements and financial transactions. Purchasers will attempt to acquire a dental practice that can provide the highest return on their investment purchase. Sellers are interested in strategically partnering with a buyer who helps them meet their goals. The first step in the merger and acquisition process is to find potential candidates. You may already know of a dental practice you’re considering merging. Alternatively, you may need to search for a smaller, independent dental practice that fits your criteria.
Valuation Analysis and Negotiations
As discussions between the buyer and seller move forward, the acquiring company will need to consider the size of the dental practice. They may use different valuation models to decide on their initial offer. The selling company will usually negotiate the value of the practice. Negotiation can be the make-or-break step during the dental merger and acquisition process. Both parties can make a case for their counteroffers and attempt to land on an agreeable amount. Next, the parties will typically begin negotiating the finer points of the deal.
Due Diligence in Dental Mergers and Acquisitions
The buyer has a right to engage in due diligence. Before the buyer begins investing significant time and attorney’s fees into the due diligence process, they may send a pre-letter of intent (LOI) to ensure the potential dental practice meets its minimum criteria. Generally, LOIs are non-binding with a few binding clauses, such as maintaining confidentiality, not using trade secrets, and nonsolicitation of patients and employees.
After the LOI has been signed, the buyer can begin a more thorough due diligence investigation. The seller should consider whether the seller aligns with your mission, values, objectives, and goals. The seller should also consider operational details by considering the seller’s IT equipment, human reserves handbook, lease details, lab procedures, fee schedules, liability insurance, and more.
A significant portion of the due diligence process should be dedicated to financial details and include research into the practice’s balance sheets, profit and loss sheets, tax returns, and more. The next step is the asset purchase agreement (APA) and employment agreements. The final step involves signing the closing documents and writing the funds.
Obstacles that Can Arise During a Merger and Acquisition
Even when both parties agree on all the major terms of the merger and acquisition, conflicts and legal issues can arise. When you work with a skilled attorney, your attorney can help you negotiate and maneuver through any issues. Many potential conflicts can be addressed during the negotiation process and through the dental practice purchase agreement. Considering the following issues and including provisions in the purchase agreement may be able to help you avoid legal issues:
- Does the seller’s computer system reflect the seller’s broker’s representation?
- How is the valuation of the practice being formulated?
- What will happen to the employees of the acquired practice?
- Does the broker have any conflicts of interest?
- Have there been any malpractice, harassment, or any other board claims?
- What kind of renovations will each party be responsible for after the acquisition?
These are only a few issues that should be addressed before a merger and acquisition. The skilled attorneys at Mahan Dental Law understand what it takes for a successful merger and acquisition to be finalized. We will represent your business interests throughout the entire process and make you aware of any red flags that may need to be addressed.
How Can I Determine the Value of My Dental Practice?
The valuation of your dental practice is an important step in the merger and acquisition process. A professional valuation is crucial to understanding what your practice or dental practices are worth. Multiple factors influence the valuation of your practice and what you may be offered. If you’re considering transitioning ownership through a merger or acquisition, Mahan Dental Law will help you properly value your practice and negotiate the best offer possible.
Discuss Your Mergers and Acquisitions Matter with a Skilled Attorney
The merger and acquisition of a dental practice can be challenging. Working with an experienced attorney can help you protect yourself and your interests. If you have questions about buying or selling a dental practice, Mahan Dental Law is here to help. We have a proven track record of successfully representing dental clients throughout the United States. Contact us to schedule your free case evaluation.