Beware the Letter of Intent

I recently received an email from a distraught physician. Several months previously, he had sold his practice to a large private equity-funded group. The terms spelled out in the group’s letter of intent (LOI) seemed ideal. He could continue running his office any way he wished, set his own hours and fees, and keep his employees. All his overhead expenses would disappear. His income would remain the same, maybe even increase. He signed it eagerly.

When he received the actual sale and employment contracts, none of the details promised in the LOI were included; but he figured that since they were spelled out in the LOI, which both he and the buyer had signed, he was covered. His attorney — a family friend with no experience in medical practice transactions — approved the documents.

Eastern _Joseph_S_web.jpg

The deal seemed too good to be true, and it was. The day after the sale closed, all his employees received termination notices. The group offered to rehire some of them, but at lower salaries and reduced benefits. (Most declined.) The new staffers he received were inadequately trained and unfamiliar with his standard office procedures. Patients complained that fees had increased substantially. His own compensation was contingent on meeting strict billing and performance goals. Malpractice premiums remained his responsibility. His office hours were lengthened to include evenings and Saturday mornings.

When he complained to the group that none of the things promised in the LOI had been delivered, he was informed that the LOI was not legally binding. In fact, the sale and employment contracts both clearly specified that they “replaced any previous written or oral agreements between the parties.”

There are some valuable lessons to be learned here. First, whether you are a young physician seeking a new job with a hospital or large practice, or an older one looking to sell an established practice, retain an attorney experienced in medical transactions early, before you sign anything, binding or not. Second, recognize that any promises made in an LOI must be spelled out in the employment and/or sale contract as well.

You might ask, if the terms in an LOI are not binding, why bother with one at all? For one thing, you want to make sure that you and your potential employer or buyer are on the same page with respect to major terms before you get down to details in the employment agreement and/or the medical practice sale agreement. For another, in most states certain LOI provisions are legally binding. For example, the document will most likely provide that each party is responsible for its own attorneys’ fees and for maintaining confidentiality during the negotiations, and that you will not negotiate with any other parties for some specified period of time. In most cases, such provisions are binding whether you go on to sign a formal contract or not.

When you receive an LOI, go through it carefully and identify areas of concern. The offering party will likely be in a rush to sign you up; but once you sign, you won’t be able to negotiate with anyone else for a while, which weakens your negotiating position. Regardless of what is said about time being “of the essence,” proceed slowly and with caution.

[embed:render:related:node:263583]

Bear in mind that employers and buyers never begin with their best offer. Unless you have been through this before, it is unlikely that you will know your value as an employee or the value of your practice, or what exactly you are entitled to ask for. Rather than signing something you don’t completely understand, explain to the offering party that you need time to consider and evaluate their offer.

This is the time to hire a competent medical attorney to do some due diligence on the offering party and review their offer, and to educate yourself about practice value and compensation benchmarks in your area. You and your counsel should assemble a list of things that you want changed in the LOI, then present them to the other side. They should be amenable to negotiation. If they are not (as was the case in the example presented earlier), you should reconsider whether you really want to be associated with that particular buyer or employer.

Once you have signed the LOI, experts say speed then works to your advantage. “Time kills all deals,” as one lawyer put it. “The longer it takes to close the transaction, the more that can go wrong.” The prospective employer or buyer could uncover information about you or your practice that decreases their perception of value, or economic conditions might change.

While speed is now important, and most of the core issues should already have been resolved in the LOI, don’t be afraid to ask for everything you want, whether it’s a better sale price, higher compensation, a favorable call schedule, more vacation time, or anything else. You won’t know what you can get if you don’t ask for it.

Dr. Eastern practices dermatology and dermatologic surgery in Belleville, N.J. He is the author of numerous articles and textbook chapters, and is a longtime monthly columnist for Dermatology News. Write to him at dermnews@mdedge.com.

I recently received an email from a distraught physician. Several months previously, he had sold his practice to a large private equity-funded group. The terms spelled out in the group’s letter of intent (LOI) seemed ideal. He could continue running his office any way he wished, set his own hours and fees, and keep his employees. All his overhead expenses would disappear. His income would remain the same, maybe even increase. He signed it eagerly.

When he received the actual sale and employment contracts, none of the details promised in the LOI were included; but he figured that since they were spelled out in the LOI, which both he and the buyer had signed, he was covered. His attorney — a family friend with no experience in medical practice transactions — approved the documents.

Eastern _Joseph_S_web.jpg

The deal seemed too good to be true, and it was. The day after the sale closed, all his employees received termination notices. The group offered to rehire some of them, but at lower salaries and reduced benefits. (Most declined.) The new staffers he received were inadequately trained and unfamiliar with his standard office procedures. Patients complained that fees had increased substantially. His own compensation was contingent on meeting strict billing and performance goals. Malpractice premiums remained his responsibility. His office hours were lengthened to include evenings and Saturday mornings.

When he complained to the group that none of the things promised in the LOI had been delivered, he was informed that the LOI was not legally binding. In fact, the sale and employment contracts both clearly specified that they “replaced any previous written or oral agreements between the parties.”

There are some valuable lessons to be learned here. First, whether you are a young physician seeking a new job with a hospital or large practice, or an older one looking to sell an established practice, retain an attorney experienced in medical transactions early, before you sign anything, binding or not. Second, recognize that any promises made in an LOI must be spelled out in the employment and/or sale contract as well.

You might ask, if the terms in an LOI are not binding, why bother with one at all? For one thing, you want to make sure that you and your potential employer or buyer are on the same page with respect to major terms before you get down to details in the employment agreement and/or the medical practice sale agreement. For another, in most states certain LOI provisions are legally binding. For example, the document will most likely provide that each party is responsible for its own attorneys’ fees and for maintaining confidentiality during the negotiations, and that you will not negotiate with any other parties for some specified period of time. In most cases, such provisions are binding whether you go on to sign a formal contract or not.

When you receive an LOI, go through it carefully and identify areas of concern. The offering party will likely be in a rush to sign you up; but once you sign, you won’t be able to negotiate with anyone else for a while, which weakens your negotiating position. Regardless of what is said about time being “of the essence,” proceed slowly and with caution.

[embed:render:related:node:263583]

Bear in mind that employers and buyers never begin with their best offer. Unless you have been through this before, it is unlikely that you will know your value as an employee or the value of your practice, or what exactly you are entitled to ask for. Rather than signing something you don’t completely understand, explain to the offering party that you need time to consider and evaluate their offer.

This is the time to hire a competent medical attorney to do some due diligence on the offering party and review their offer, and to educate yourself about practice value and compensation benchmarks in your area. You and your counsel should assemble a list of things that you want changed in the LOI, then present them to the other side. They should be amenable to negotiation. If they are not (as was the case in the example presented earlier), you should reconsider whether you really want to be associated with that particular buyer or employer.

Once you have signed the LOI, experts say speed then works to your advantage. “Time kills all deals,” as one lawyer put it. “The longer it takes to close the transaction, the more that can go wrong.” The prospective employer or buyer could uncover information about you or your practice that decreases their perception of value, or economic conditions might change.

While speed is now important, and most of the core issues should already have been resolved in the LOI, don’t be afraid to ask for everything you want, whether it’s a better sale price, higher compensation, a favorable call schedule, more vacation time, or anything else. You won’t know what you can get if you don’t ask for it.

Dr. Eastern practices dermatology and dermatologic surgery in Belleville, N.J. He is the author of numerous articles and textbook chapters, and is a longtime monthly columnist for Dermatology News. Write to him at dermnews@mdedge.com.

I recently received an email from a distraught physician. Several months previously, he had sold his practice to a large private equity-funded group. The terms spelled out in the group’s letter of intent (LOI) seemed ideal. He could continue running his office any way he wished, set his own hours and fees, and keep his employees. All his overhead expenses would disappear. His income would remain the same, maybe even increase. He signed it eagerly.

When he received the actual sale and employment contracts, none of the details promised in the LOI were included; but he figured that since they were spelled out in the LOI, which both he and the buyer had signed, he was covered. His attorney — a family friend with no experience in medical practice transactions — approved the documents.

Eastern _Joseph_S_web.jpg

The deal seemed too good to be true, and it was. The day after the sale closed, all his employees received termination notices. The group offered to rehire some of them, but at lower salaries and reduced benefits. (Most declined.) The new staffers he received were inadequately trained and unfamiliar with his standard office procedures. Patients complained that fees had increased substantially. His own compensation was contingent on meeting strict billing and performance goals. Malpractice premiums remained his responsibility. His office hours were lengthened to include evenings and Saturday mornings.

When he complained to the group that none of the things promised in the LOI had been delivered, he was informed that the LOI was not legally binding. In fact, the sale and employment contracts both clearly specified that they “replaced any previous written or oral agreements between the parties.”

There are some valuable lessons to be learned here. First, whether you are a young physician seeking a new job with a hospital or large practice, or an older one looking to sell an established practice, retain an attorney experienced in medical transactions early, before you sign anything, binding or not. Second, recognize that any promises made in an LOI must be spelled out in the employment and/or sale contract as well.

You might ask, if the terms in an LOI are not binding, why bother with one at all? For one thing, you want to make sure that you and your potential employer or buyer are on the same page with respect to major terms before you get down to details in the employment agreement and/or the medical practice sale agreement. For another, in most states certain LOI provisions are legally binding. For example, the document will most likely provide that each party is responsible for its own attorneys’ fees and for maintaining confidentiality during the negotiations, and that you will not negotiate with any other parties for some specified period of time. In most cases, such provisions are binding whether you go on to sign a formal contract or not.

When you receive an LOI, go through it carefully and identify areas of concern. The offering party will likely be in a rush to sign you up; but once you sign, you won’t be able to negotiate with anyone else for a while, which weakens your negotiating position. Regardless of what is said about time being “of the essence,” proceed slowly and with caution.

[embed:render:related:node:263583]

Bear in mind that employers and buyers never begin with their best offer. Unless you have been through this before, it is unlikely that you will know your value as an employee or the value of your practice, or what exactly you are entitled to ask for. Rather than signing something you don’t completely understand, explain to the offering party that you need time to consider and evaluate their offer.

This is the time to hire a competent medical attorney to do some due diligence on the offering party and review their offer, and to educate yourself about practice value and compensation benchmarks in your area. You and your counsel should assemble a list of things that you want changed in the LOI, then present them to the other side. They should be amenable to negotiation. If they are not (as was the case in the example presented earlier), you should reconsider whether you really want to be associated with that particular buyer or employer.

Once you have signed the LOI, experts say speed then works to your advantage. “Time kills all deals,” as one lawyer put it. “The longer it takes to close the transaction, the more that can go wrong.” The prospective employer or buyer could uncover information about you or your practice that decreases their perception of value, or economic conditions might change.

While speed is now important, and most of the core issues should already have been resolved in the LOI, don’t be afraid to ask for everything you want, whether it’s a better sale price, higher compensation, a favorable call schedule, more vacation time, or anything else. You won’t know what you can get if you don’t ask for it.

Dr. Eastern practices dermatology and dermatologic surgery in Belleville, N.J. He is the author of numerous articles and textbook chapters, and is a longtime monthly columnist for Dermatology News. Write to him at dermnews@mdedge.com.