Most sellers will retain the services of a specialist agent to act as an intermediary and broker the key commercial terms for the transaction. Once their offer has been accepted, most buyers will try and ensure that they are the “only horse in the race” and will ask the seller for a commitment not to negotiate with other prospective buyers for a period of time. In return, a seller will often ask the buyer for a deposit of up to 10% of the agreed price. Usually the parties agree that the deposit can be refunded in certain circumstances (e.g. if the seller withdraws from the sale without fair reason).
Any buyer will also want to undertake due diligence into the veterinary practice to confirm that the business conforms to their expectations and any sales information. It will also allow a buyer to understand what is required to operate the business from completion of the sale.
A due diligence exercise generally takes the form of questionnaires relating to all aspects of the operation of the business together with requests for certain documents. We therefore generally advise that a seller enter into a confidentiality agreement with the buyer before any sensitive information is shared with them.
Structure of the Transaction
If a veterinary practice is owned by an individual or through a partnership, the practice will be sold by way of a transfer of the business's assets to the buyer. An asset sale involves the buyer acquiring the key assets that comprise the business (e.g. premises, goodwill and fixed assets). Generally on an asset sale the buyer will not inherit legal responsibility for the operation of the practice before completion of the sale.
If the business is owned by a company, the company can sell the assets of the practice to the buyer (by way of asset sale as above). The buyer could alternatively purchase the company itself. While there are advantages to this option, a buyer, will inherit all liabilities within the company. For this reason, the share sale contract is often more complex and detailed than the equivalent upon an asset sale. Tax advice should also be sought as to the tax charges arising on a sale.
As a general rule, on the sale of a practice by way of asset sale, the contracts of employment of the staff at the business, immediately before the sale is completed, are transferred automatically to the buyer on completion of the sale.
As a result, the buyer becomes responsible for all the rights, obligations and liabilities of the seller (including historic) in relation to the workforce under the employment contracts. That is the case in any event where the sale proceeds as a company sale.