Definition
A Definitive Agreement is the final, legally binding contract that details every term and condition of a merger or acquisition. If a Letter of Intent (LOI) is the “handshake deal,” the Definitive Agreement is the comprehensive, signed legal document that makes the transaction official. It is executed after the buyer has completed their due diligence and all parties are ready to commit.
Why This Matters to Healthcare Providers
For you as a practice owner, the Definitive Agreement is the most significant document in your sale process. It dictates the exact purchase price, your post-sale responsibilities, and your legal protections—or liabilities—long after the deal closes. An error or overlooked clause here can have lasting financial and professional consequences.
Think of it like the final purchase and sale agreement for a house, signed only after the inspector (the buyer’s due diligence team) has gone through every room.
Example in Healthcare M&A
Scenario: A private equity group provides a Letter of Intent to acquire your thriving orthopedic practice. After three months of intense financial and legal due diligence, their attorneys draft a 100-page Definitive Agreement.
Application: The DA formalizes key terms. It sets the final purchase price at $10 million, with $8 million paid at closing and $2 million held in an earn-out tied to the practice meeting specific revenue targets over the next two years. It also includes strict Representations and Warranties where you personally guarantee the accuracy of your billing records and compliance with Stark Law.
Outcome: Once you sign the DA, you are legally bound to these terms. If an audit a year later reveals billing errors you were unaware of, the buyer can make an indemnification claim against you for breaching your representations, potentially reducing or eliminating your earnout payment. This shows how terms beyond the sale price directly affect your final take-home proceeds.
Related Terms
- LOI (Letter of Intent) – The preliminary, non-binding offer that starts the formal negotiation process before due diligence.
- Due Diligence – The buyer’s investigation into your practice’s finances, operations, and legal compliance, which occurs before a Definitive Agreement is signed.
- Representations and Warranties – The specific promises and factual statements you make about your practice within the Definitive Agreement.
- Indemnification – A key section of the DA that outlines how you will compensate the buyer for any financial losses if your representations prove to be untrue.
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About the SovDoc M&A Glossary
Hand-curated by our deal-makers and analysts, the SovDoc glossary turns complex mergers-and-acquisitions jargon into clear, plain-English definitions.
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Frequently Asked Questions
What is a Definitive Agreement (DA) in mergers and acquisitions?
A Definitive Agreement is the final, legally binding contract that details every term and condition of a merger or acquisition. It follows the Letter of Intent (LOI) and is executed after the buyer completes their due diligence, making the transaction official.
Why is the Definitive Agreement important for healthcare providers selling their practice?
For healthcare practice owners, the Definitive Agreement is the most significant document in the sale process. It specifies the exact purchase price, post-sale responsibilities, legal protections, and liabilities. Errors or overlooked clauses can have lasting financial and professional consequences.
What does a Definitive Agreement typically include in a healthcare merger or acquisition?
In healthcare M&A, the Definitive Agreement formalizes key terms such as the final purchase price, payment structure including any earn-outs tied to revenue targets, and representations and warranties where the seller guarantees the accuracy of billing and compliance with laws like the Stark Law.
What could happen if there are inaccuracies in the seller’s representations after signing the Definitive Agreement?
If billing errors or other inaccuracies are discovered after signing the Definitive Agreement, the buyer can make an indemnification claim against the seller for breaching their representations. This can potentially reduce or eliminate earnout payments and have financial repercussions for the seller.
How does the Definitive Agreement relate to other documents like the Letter of Intent and due diligence?
The Letter of Intent (LOI) is the preliminary, non-binding offer that initiates formal negotiations. Due diligence is the buyer’s investigation into the practice’s finances and compliance before signing the Definitive Agreement. The DA is the comprehensive, binding contract signed after these steps are completed.