Today's Veterinary Business

OCT 2018

Today’s Veterinary Business provides information and resources designed to help veterinarians and office management improve the financial performance of their practices, allowing them to increase the level of patient care and client service.

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50 Today's Veterinary Business Leadership Leadership LEGAL LINGO The number of mergers and acquisitions occurring in the veterinary industry is unquestionably at an all-time high. Corporate chains and aggregators own as much as 15 percent of general companion animal prac- tices, according to estimates, and the percentage is even higher for specialty practices. This means an increasing number of veterinarians are entering the deal arena and putting their negotiation skills to the test. By Nicole Snyder, JD The negotiations that precede a practice sale are not for the faint of heart, particularly for veterinar- ians who are new to mergers and acquisitions. Certain agreement terms are central to almost every deal, and understanding them is crucial when the parties approach the bargaining table. Any practice acquisition involves three fundamental agreements: • The non-disclosure agree- ment. This is typically signed before any exchange of meaningful financial or prac- tice information. In general terms, it protects the seller's confidential information, but other provisions might be proposed as well. • The term sheet or letter of intent. This sets forth the main deal terms. The doc- ument confirms that both parties see eye to eye on the deal before they proceed to the full sale agreement. • The purchase agreement. This is the final, detailed agreement setting forth all the terms by which the parties agree to purchase and sell the practice. It incorporates and supersedes the provisions in the term sheet or letter of intent, but it also addresses numerous other provisions. Here are tips and strategies that buyers and sellers can employ. Negotiating the NDA To facilitate a possible sale, the buyer needs to see the seller's financial and other business infor- mation. As a result, nearly every deal starts with the exchange of a non-disclosure agreement, or NDA, which is intended to protect the seller's confidential data. Generally speaking, NDAs obligate the buyer to protect the seller's non-public information and use it only for the purpose of evaluating a purchase. Not all NDAs are created equal- ly, so don't assume the NDA is a standard document. SELLERS SHOULD: • Make sure that sensitive information isn't defined too narrowly and that the docu- ment covers everything the seller wants to protect. • Confirm there are no seller representations about the accuracy of the information ei- ther being complete or true at this stage of the transaction. • Seek a long-term NDA. Buyers might not agree to an indef- inite period, but they should be willing to obligate them- selves for one to several years after the parties separate. • Consider asking the buyer to agree that if negotiations fail, the buyer will not solicit the seller's employees for a set period. This is particular- ly important if the seller is concerned that the buyer will obtain pay data and other important information about employees during the due diligence process. BUYERS SHOULD: • Make sure the definition of confidential information isn't too broad. The list should not cover information that is discoverable through legal means or that is in the buyer's possession. • Watch for employee non- solicitation agreements. While a buyer may be willing to agree not to seek out and solicit a seller's employees for some period after a deal falls apart, the duration should be limited. The buyer might require that it be allowed to hire the seller's employees if they respond to the buyer's general job announcements. • Consider whether the NDA should be a mutual agree- ment, meaning it protects the buyer's information as well. This is important in deals in which the buyer shares con- fidential information, such as business plans or pay data for the buyer's existing practices. Negotiating the Term Sheet or the Letter of Intent Before drafting and negotiating a long and detailed sale agreement, the parties will almost always sign a term sheet or a letter of intent (LOI) that describes the basic terms of the deal. These include critical items such as the purchase price, the struc- ture of the deal, the form and timing of payment, the assets and liabilities being transferred or retained, and the terms of employment and man- agement rights after closing. The LOI is critically important in helping the parties determine whether they agree on enough key deal points to proceed. A thorough and well-drafted LOI can save both parties lots of time and legal fees. SELLERS SHOULD: • Seek to lock in a purchase price with minimal adjust- ments. Ideally, the purchase price will not be subject to substantial downward adjust- ments during due diligence as the buyer reviews the seller's business information. • Negotiate for more of the purchase price to be paid at closing rather than over a period after closing. • Negotiate key employment agreement terms. If contin- ued employment for a set pe- riod is important to the selling Seal the deal Negotiating the purchase or sale of a veterinary practice requires a firm understanding of all the documents.

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