Negotiating a practice sale agreement (PSA) is a crucial step when selling a practice. A well-drafted PSA ensures that the terms and conditions of the sale are clearly defined and protects the interests of both the purchaser and the vendor. However, there are several common issues that can occur during the negotiation process, leading to potential legal and financial issues. In this blog, we will explore some of these common issues and provide insights on how to avoid them.
1. Failing to Clearly Define the Sale Terms: One of the most significant mistakes in drafting a PSA is failing to clearly define the terms of the sale. Vague or ambiguous language can lead to misunderstandings and disputes down the line. It is crucial to include detailed information about the assets being sold, purchase price, payment terms, and any conditions precedent.
2. Disregarding Due Diligence: Insufficient due diligence can be a costly mistake when drafting a PSA. It is important to thoroughly investigate the financial, legal, and operational aspects of the practice being sold. Failure to conduct due diligence may result in undisclosed liabilities (employee entitlements!), pending legal issues, or inaccurate financial statements. Incorporate a clause (including vendor personal warranties and indemnities) in the PSA that requires the vendor to provide accurate and complete information about the practice.
3. Ignoring Legal and Statutory Requirements: Another common mistake is overlooking legal and statutory requirements during negotiations. Practices must comply with various laws and statutes, including licensing (radiation) and specific planning permits. Failure to address these requirements in the PSA may lead to serious post-settlement complications. Seek legal advice to ensure compliance with all relevant laws and statutes.
4. Disregarding Non-Compete and Confidentiality Clauses: When selling a practice, it is crucial to protect its goodwill and confidential information. Overlooking non-compete and confidentiality clauses in the PSA (for a purchaser) can result in the vendor competing directly with the purchaser or, potentially, using sensitive practice information at a competing practice. These clauses restrict the vendor from engaging in similar practice activities or using confidential information for a specified period, safeguarding the purchaser's interests.
5. Inadequate Dispute Resolution Mechanisms: Failure to include clear dispute resolution mechanisms in the PSA can lead to prolonged legal battles and significant costs. Include provisions for mediation, arbitration, or alternative dispute resolution methods to resolve any disputes that may arise. These mechanisms can help parties reach a resolution more efficiently and avoid inherently costly litigation.
Negotiating a PSA requires careful attention to detail and a comprehensive understanding of the health industry and its relationship with the legal and financial aspects involved. By avoiding common issues such as unclear terms, inadequate due diligence, non-compliance with legal requirements, neglecting non-compete and confidentiality clauses, and inadequate dispute resolution mechanisms, both the purchaser and the vendor's interests are better protected and balanced fairly/commercially. Seek professional legal guidance to ensure that your PSA is well-drafted, legally sound, and reduces the potential for disputes or complications.