Frequently asked questions - buying or selling a dental practice
1. How much are the legal fees associated with selling or buying a practice?
This will be dependent on the extent of the likely legal work which will be determined by a range of factors including the size of the practice, how the practice is held (by a private individual or a company), what is happening with the practice premises (purchase of a freehold, leasehold, or grant of a new lease), how the practice is staffed, the practices’ business (i.e. private patients, NHS patients or a mix of both), whether the transaction is a share sale or asset sale and whether we also act for the lender. We offer fixed fees for both sales and purchases at competitive rates which provides our clients with certainty as to our fees and affords them opportunity to focus on the transaction at hand without any concern as to costs. There are some additional costs associated with these types of transaction; for example payment of search fees, stamp duty land tax or stamp duty.
2. What does the due diligence process involve?
Essentially this is a “fact finding” exercise about the practice; its accounts, its employees, its patients, its assets and any appropriate insurances in place etc. When we act for a buyer we submit relevant and comprehensive enquiries requesting copies of all the necessary documentation, reviewing the same once received and identifying any gaps or issues, raising further enquiries as appropriate. It is important to raise appropriate enquiries as the seller does not have to volunteer any information that is not requested. When we act for a seller we advise on completion of all the enquiries received from the buyer and assist in organising and indexing the documentation into due diligence files, which will then be referred to throughout the transaction. It is important to make appropriate disclosures in relation to the enquiries. The information gained during the due diligence process will shape the warranties that need to be included in the agreement for sale.
3. How long will it take to sell or purchase my practice?
A very straight forward transaction can take between 3-4 months, although this type of transaction is quite rare. For example it would be where a practice is relatively small, has few assets and only has private patients; so there are no issues with regard to facilitating the transfer of an NHS contract. Transactions which are more complicated can take between 6-12 months. The speed of the transaction also depends on the response timescales of others involved in the transaction; the CQC, NHS England, a lender or a landlord. Importantly a buyer must be registered with the CQC prior to completion of the purchase and this process can take 12-16 weeks. We are able to provide you with an indication of the anticipated timescale for the transaction on initial consultation.
4. What is the difference between an asset purchase and a share purchase?
If a practice is owned by a sole trader or partnership then the premises, the stock, the fixtures and fittings and goodwill, the established reputation of the business and the patient list are purchased. Alternatively, if a practice is run by a company, it is possible to purchase the entire shareholding of the company. Effectively the purchaser becomes the new and sole owner of the existing company.
5. Will the practice premises be included in the sale?
The practice premises will usually be included in the sale, in one form or another, as it will be the buyers’ preference to remain in the premises for convenience and continuity for the patients. The practice premises can either be bought outright, so the freehold of the property will be purchased and owned by the buyer. Alternatively, if the seller does not want to sell the freehold (this can be for a variety of reasons), it is possible to negotiate a lease, providing for the occupation of the premises for an agreed number of years subject to agreed terms. Where the property is rented, it will be necessary to negotiate a licence to assign the lease, from the seller to the buyer.
6. What is the difference between a GDS contract and a PDS agreement?
The GDS (General Dental Services) contract and PDS (Personal Dental Services) agreement are the two types of contracts which exist for NHS dentists and govern how dental treatment will be delivered to NHS patients by the practice. A GDS contract gives greater flexibility with regard to the taking on of new partners who will then provide services under that same contract. The same does not apply for a PDS agreement; which is personal to the individual or entity who has agreed to provide services under the terms. This type of agreement is usually entered into with specialist providers (e.g. orthodontists). A PDS agreement is also for a fixed term whereas a GDS contract is often open ended. It is for these reasons that dealing with a sale of a practice with a PDS agreement is somewhat more complicated.
7. Does the seller always carry on at the practice post completion?
This is often a key part of the agreed terms of sale. Again, for continuity for the patients of the practice, and to assist with the transition of the patients to the new practice owners, it is often agreed that the seller will remain at the practice for a specified period of time, under the terms of an appropriate Associate Agreement. This will not always be necessary, for example where the seller is retiring from dental practice, or is selling the practice due to some health or other difficulty.
8. Will the activities of the seller be restricted after completion of the sale?
Most purchasers will want to avoid the risk that the seller immediately opens a competing dental practice nearby after the sale has completed. So usually there will be some provisions in the agreement, restricting the seller from working as a dentist within a certain area around the practice, or attempting to contact existing clients of the practice and solicit their business for the benefit of any alternative dental practice. These terms are negotiated as part of the agreement for sale.
9. What happens to the employees?
If the practice is being purchased as an ongoing concern, the employees’ employment will automatically transfer to the new owners in accordance with the Transfer of Undertakings (Protection of Employment) Regulations 2006, commonly referred to as “TUPE”. If a purchaser has other plans for the practice and its staff, then this needs to be addressed at an early stage as a required procedure, as set out by the regulations, needs to be followed in order to avoid any employment related claims. If the employees are employed by a company and the practice is being acquired as a share purchase, there is no change of employer for the employees and so their employment does not transfer to a new entity and TUPE does not apply.
10. What agreements may I need in place to regulate my new business post completion?
Some of the agreements that may be required, where applicable, are incorporated into the Sale and Purchase Agreement (for example an Associate Agreement, a Partnership Agreement). Associate Agreements may be required for self-employed staff at the practice to retain their services and prevent them from setting up a competing practice. If you are purchasing a company with others, you may want to consider having an appropriate shareholders agreement in place between you which can set out how the company will be run on a day-to-day basis. It is common for dentists with their own practice businesses to share premises and other common expenses (e.g. reception staff). If this is the case, the agreed rules as to how that arrangement will carry on can be set out in an expense-sharing agreement.
To discuss any aspect of your dental or healthcare business, call us on 0117 926 4121.