A Letter of Intent (LOI) is a document from a potential buyer that outlines the proposed main terms for acquiring your practice. You can think of it as a detailed blueprint for the deal. While core business terms like purchase price are typically non-binding, an LOI almost always contains legally binding clauses, such as confidentiality and an exclusivity period (a “no-shop” agreement).
Why This Matters to Healthcare Providers
Receiving an LOI is a major milestone. It means a buyer is serious enough to put a formal offer structure on the table. This document sets the foundation for the entire negotiation, defining the initial valuation, proposed physician compensation, and your role after the sale. Signing an LOI takes your practice off the market and kicks off the buyer’s formal Due Diligence process.
Example in Healthcare M&A
Scenario: A private equity firm wants to acquire your successful multi-location dermatology practice as a new platform investment. After several meetings, they send you an LOI.
Application: The LOI proposes a purchase price calculated as a multiple of your practice’s EBITDA. It specifies that the physician-owners will roll over 20% of their equity into the new company and sign 5-year employment agreements. The LOI also includes a binding 90-day exclusivity period, meaning you cannot talk to other potential buyers during this time.
Outcome: By signing the LOI, you agree to the proposed framework and grant the buyer 90 days to conduct a deep dive into your practice’s financials, operations, and regulatory compliance. The final price is still subject to what they find, but the key terms of the potential partnership are now clearly defined, guiding the creation of the final binding contract.
Related Terms
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Frequently Asked Questions
What is a Letter of Intent (LOI) in the context of healthcare practice sales?
A Letter of Intent (LOI) is a document from a potential buyer outlining the proposed main terms for acquiring a healthcare practice. It acts as a detailed blueprint for the deal, indicating serious buyer interest and setting the foundation for negotiations.
Are the terms in an LOI legally binding?
Core business terms like purchase price are typically non-binding in an LOI. However, it usually contains legally binding clauses such as confidentiality agreements and an exclusivity period (or “no-shop” agreement) during which the seller cannot negotiate with other buyers.
Why is receiving an LOI a significant milestone for healthcare providers?
Receiving an LOI is significant because it signifies that a buyer is serious enough to formalize an offer structure. It defines the initial valuation, proposed physician compensation, and the seller’s role post-sale. Signing an LOI takes the practice off the market and starts the buyer’s formal due diligence process.
What is an example scenario of an LOI in healthcare mergers and acquisitions?
A private equity firm wanting to acquire a multi-location dermatology practice could send an LOI proposing a purchase price based on a multiple of EBITDA. The LOI might specify that physician-owners roll over 20% of their equity and sign 5-year employment agreements, including a binding 90-day exclusivity period. Signing it allows the buyer to conduct due diligence while defining the framework for the final contract.
What role does the exclusivity period in an LOI play in the acquisition process?
The exclusivity period in an LOI is a legally binding timeframe during which the seller agrees not to engage with other potential buyers. This period allows the buyer to conduct a thorough due diligence investigation without competition, ensuring the deal’s terms are evaluated in detail before finalizing.