The process of buying a practice
Buying and selling a dental practice can be a complex process. But with the right support and a clear understanding of what’s involved, there’s no reason why it can’t be a smooth sale.
The first thing to know is that there are four key stages to the transaction:
- Due diligence
- Contract negotiation
- Exchange and completion
Below, you’ll find a brief guide to each of these stages.
The pre-contract stage
The first step to buying a practice is to make an offer. As soon as you’ve had an offer accepted, you need to start thinking about your CQC (Care Quality Commission) application.
A new application will take the CQC 10 to 12 weeks to process, so it’s important to get moving – or the purchase could be delayed. The CQC process will include a written application, and most likely an interview.
If the transaction involves the transfer of the NHS Contract, a joint application from both seller and buyer is required.
Transfer of the NHS contract
Before making an offer, you’ll already have seen basic information about the practice you’re buying. Things like profitability, turnover, the number of surgeries and the number of staff.
The due diligence phase is where you discover more about your potential new practice. After all, the decision to purchase is not yet fully made.
During this stage, the buyer’s solicitor serves a due diligence questionnaire on the seller’s solicitor. It typically includes all manner of enquiries, such as:
- A request for the last three years of accounts
- Whether or not the practice has a private capitation scheme.
- Whether there are any disputes, claims or litigation affecting the practice.
Many other enquiries are often raised, to help you understand exactly what you are buying.
The contract negotiation
Once all enquiries have been completed, the parties then move to the drafting of the key contractual document - the Sale and Purchase Agreement (SPA).
The SPA transfers either the entire issued share capital in a dental corporate body, or the business and assets of a sole trade or partnership.
Usually, the buyer’s solicitor will draft the SPA. If the purchase is being funded through an acquisition loan, the lender will also be involved in the review and/or negotiation of these provisions.
What is the SPA?
The SPA sets out exactly what the buyer is getting and for how much. It details the rights and obligations of each party in relation to the transfer of the business and its assets.
The SPA will also outline warranties. These are effectively promises made by either the selling or buying party. An example of a warranty is where the seller warrants there are no claims or disputes currently being pursued against the practice.
The SPA also includes specific provisions found only in dental transactions. Things like:
- The performance of work in progress
- The apportionment of pre-payments and costs (such as laboratory fees)
- NHS clawback
- UDA (Units of Dental Activity) underperformance.
The SPA is also likely to place restrictions on the seller. For example, the seller may be stopped from poaching staff and patients from the practice once the sale goes through.
Exchange and completion
By the time due diligence has been done and the SPA created, the CQC application will hopefully be approved. The parties can then move towards exchange and completion.
Exchange is the swapping of agreed signed and dated SPAs. These SPAs create legally binding rights and obligations on the parties.
Straight after the exchange, the buyer’s solicitor can ask the LAT (Local Area Team, once known as a Primary Care Trust) to change the name on the NHS Contract. Remember, this needs to be put into the joint names of the buyer and the seller.
The LAT will have 28 days to consider and amend the contract. During this time, both buyer and seller can deal with their TUPE obligations. TUPE refers to the Transfer of Undertakings (Protection of Employment) Regulations 2016.
Completing the purchase
Once the NHS Contract has been changed by the LAT, the parties can proceed to completion. Confirmation of the change usually comes in the form of a clause 295 notice.
Then, one or two months after completion, the seller’s solicitor will submit the relevant NHS notice to the LAT to retire the seller from the partnership.
This will trigger the release of a new NHS Contract in the sole name of the buyer. And just like that, the practice is all yours.