Due Diligence: The Buyer’s Perspective
In the previous article, we examined due diligence in regard to the role of the vendor, with advice provided on the best way to approach the process. This time, the procedure is viewed from the perspective of the buyer and explores what work must be completed to ensure a quality outcome.
The Role of the Purchaser
First of all, it is important to note that due diligence is nowhere near as daunting for a buyer as it is a seller, mostly due to the nature of the work that is required. Indeed, for the vendor the process can be gruelling, time consuming and complicated thanks to the sheer volume of information that needs to be collated. The purchaser’s task, on the other hand, is much more straightforward. The main objective is simply to explore the documentation provided to determine whether there are any issues with the practice that could affect its value or incur legal or financial liabilities.
All in all, due diligence is the intermediate process in which the buyer decides if they want to progress with the sale and move towards completion or withdraw from the purchase. It also forms part of the disclosure process at exchange of contracts. It is important to note that in the event the seller isn’t forthcoming with the appropriate information, it would be wise for the buyer to consider their options – after all, if a business has nothing to hide, there is no need to withhold relevant information.
Because the vendor does not have to volunteer information that is not specifically asked of them, however, one should be aware that it is down to the purchaser to be thorough during enquiries. That being said, it is unlawful to conceal or lie during due diligence, which means a buyer is well within their rights to file for a breach of warranty claim and/or a claim of misrepresentation from the vendor if such a situation comes to light later on down the line.
Areas of Enquiry
To help identify the areas of enquiry and the types of documents that must be provided by the seller, it is always advisable to utilise the services of a solicitor; preferably one with dental specific experience. Their role is to send out a questionnaire to the seller’s solicitors during the initial stages and request written replies along with evidence and supporting documentation. After that, it is their job to ensure that all information is inspected thoroughly for any flaws or lack of detail. If they are dissatisfied, one can rest assured that they will address these issues and take the appropriate steps to gain the necessary data.
Although it is up to the solicitors to ensure that all enquiries have been fully answered, and it is their duty to report back to the buyer with any concerns, it can be prudent to take an active role during the process – not only for peace of mind, but to gain a clearer picture of the practice.
So what are the areas of enquiry? First and foremost, it is important to clarify with the seller what their plans are after the sale. Are they staying on in the practice part-time? Are they retiring? Assessing the practice’s NHS contract and ensuring UDA targets and goodwill are intact is crucial too – if a buyer is taking over an NHS or mixed practice of course and intends to take ownership of the contract.
Paperwork on equipment should also be requested, including an inventory of what will and won’t be included and what will need replacing. Thereafter, questions on the practice should be asked, including whether the practice is compliant with statutory requirements such as CQC registration and health and safety legislation. If there are any issues or doubt surrounding the information that is provided, they must be remedied immediately.
It would also be wise to request staff records. Not only can this help ensure that the practice team is protected during the changeover, but it can also highlight any areas of concern such as active disciplinary cases.
Other areas to look into include goodwill, complaints and on-going legal proceedings – if any – and documentation on the property. Establishing whether the practice is viable as a business is important too, though where possible this should be done with the assistance of an accountant to verify and calculate the estimated profit margins.
Due to the amount of paperwork and evidence that is required to complete due diligence and the general complexity of the process, it is important that the advice of the solicitor is followed to the letter. Indeed, although workload and stress levels are a lot lower for buyers during this time than the vendor, it is still crucial to keep an eye on the proverbial ball. Employing a sales and acquisitions agency such as Dental Elite can help with this – particularly if they can put you in contact with a reputable legal representative.
Due diligence is not to be underestimated, so if you are looking to buy, make sure you start your action plan now.