Proper Due Diligence – What a practice purchaser needs their lawyer to find out
A key and sometimes lengthy period for any purchaser is the due diligence period. This Blog concentrates only on your Legal Due Diligence. Purchasers need to approach vendors or their lawyers/brokers/accountants/financiers/valuers to obtain all necessary contracts and agreements and review compliance issues. A well-prepared vendor will have a detailed package containing all requisite information and material to put you in the best position to make a feasible offer to purchase the practice. You usually conduct due diligence after you and the seller have agreed in principle to a deal (preferably before entering into any heads of agreement), but definitely before signing a binding contract.
Due diligence materials normally requested by a purchaser’s lawyer are:
the current lease and disclosure statement;
all employment agreements and full details of all employees of the practice and their status as to entitlements including their period of service, hourly rates of pay, hours worked per week, long service leave, accrued sick/carer’s leave and holiday leave entitlements. If there are no written agreements, you may also need to consider entering into these after settlement;
all contractor agreements and full details of all contracting assistant dentists, dental hygienists and dental therapists;
up to date financials for your accountant to inspect;
town-planning permit or other evidence as to permitted use and any licenses or consents attaching to the clinic;
details as to vendor entities ie who owns the goodwill, the plant, the equipment, the stock;
price allocation between goodwill, plant, equipment and stock and is the stock included in the purchase price;
list of plant and equipment included in the sale and details of all hire/lease encumbrances over the plant and equipment;
details of any business names, trademarks, logos, domain names or other intellectual property attaching to the clinic;
all on-going material contracts and service arrangements, including utility contracts, which are available to be transferred to the purchaser and do you really want them?
details of any pending and potential legal proceedings against the practice or the vendor
A purchaser needs to ask why some due diligence material is either left out or refused to be provided? What is the reason behind its refusal?
The due diligence process is sometimes misunderstood and often seen as an irritation by the vendor’s advisers. However, too often we see at Whitehead Legal that complete due diligence information is only provided after a heads of agreement is entered into and delays can then ensue to reach agreement on the terms and conditions of the sale documentation. Our Whitehead Legal Due Diligence Compliance Checks should not only discover any issues, but also assist and manage solutions to any issues.
Watch our Blogs for commentary on Town Planning Permits and Employee Entitlements