Veterinary Practice Purchase: Why Do I Need a Letter of Intent?

Veterinary Practice Purchase: Why Do I Need a Letter of Intent?

 

If you are looking to purchase a veterinary practice, you need to present your offer to the selling doctor.  That is when a Letter of Intent comes in.  A Letter of Intent sets out the key terms of a transaction.  It paves the way for negotiating the purchase agreement and other major transaction documents to be signed at the closing.

 

What is a Letter of Intent?

You may think you do not need a Letter of Intent (assuming you are the incoming buyer), but the selling veterinarian likely would expect one.  Usually, a Letter of Intent is drafted by the buyer’s counsel and addressed to the seller.  In a Letter of Intent, the incoming doctor typically presents an offer to the selling doctor.  It sets out the essential terms of an offer to purchase a practice in black and white and shows the seller that the buyer is serious about the proposal.  Typically, that would include the purchase price, the form and schedule of payment, the property that will be purchased, any pre-requisites to closing on the transactions, exclusivity and confidentiality, and any other special conditions.

 

What is the upside?

A Letter of Intent can focus the negotiations and help avoid misunderstandings as the parties negotiate the transaction documents.  While a Letter of Intent does not usually create any binding obligation to complete a deal, it can enhance deal stability and can boost the parties’ commitment.

A Letter of Intent can reduce the time and expense it takes to get to the final version of the purchase agreement and any other major transaction documents.  It can also help identify potential deal breakers early on, so the parties would not spend time and resources to hire advisors and undertake extensive due diligence for a transaction that is unlikely to go through.  Ultimately, a Letter of Intent can result in savings of time and money to the incoming doctor.

 

What is the downside?

On the other hand, it takes time and resources to produce a favorable Letter of Intent.  It takes an experienced attorney to advise and draft competently a well-balanced Letter of Intent that serves the buyer’s interests.  Also, the negotiation and preparation of the Letter of Intent can somewhat extend the timeline and add to the negotiations, which are some of potential drawbacks to using a Letter of Intent.

 

What is the timing?

A Letter of Intent is delivered and entered into upfront — in the beginning of the process.  That means after some preliminary due diligence has been completed, but before the buyer undertakes extensive in-depth due diligence and certainly before the drafting of the definitive transaction documents.  Frequently, the selling veterinarian would require a Letter of Intent to move forward with detailed disclosures.

 

Key terms, anyone?

Crafting the terms intentionally saves time and resources to the buyer who is charged with preparing and presenting the Letter of Intent.   It is wise for the parties to discuss and agree on the key terms before the Letter of Intent is prepared.  This way, the buyer has more assurance that the terms are likely to be accepted.  Conversely, a buyer may wish to save certain terms for presenting in writing rather than in verbal discussions.

 

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Petrova Law is a boutique law firm focused exclusively on tax and business law matters. Attorney Petrova works with veterinarians as well as dental and veterinary practices on the national level.  She advises veterinarians on purchases and sales of veterinary practicescomplex business tax planning and tax strategy, and taxpayer representation before the Internal Revenue Service and state tax authorities.

For more information, call us today at (336) 310-1210, email us, or contact us online.