When we market a practice for a vendor, we send a mailer out to potential buyers. In the mailer it states when the vendor will be available to meet the buyers. These meetings are primarily done on Zoom rather than the usual face to face.
Once the meetings have been held and feedback has been gathered from all parties, it is normal (subject to the size of the practice being sold) for an indicative offer to be put forward by the buyer. This indicative offer is subject to due diligence. If the buyer finds things that are untoward then the offer can be changed. It is unusual for this to happen, but yes, we have had cases in the past where offers have been amended downwards. We had one case where the buyer found that some of the clients on the client list being sold had actually died several years prior to the sale being initiated. Obviously this has a knock on effect on the level of trust then shown by the buyer to the seller.
Once an offer has been made, it is up to the vendor to check the contents of the offer.
In an offer it is normal for there to be clawback clause. This is where the payment to the vendor is reduced by an agreed % to take account of any clients that leave during the payment term. It is normal practice in a deal spanning three payments over two years for clawback to be 100% in the first year and 50% in the second year.
However, to my surprise and for the first time ever, we had a clawback clause put forward by the buyer in the event that an employee should leave during the payment term.
The clause in the offer was along the following lines:-
- In the event that the employee leaves in the first 12 months a clawback clause of 100% of their remuneration will apply.
- In the event that the employee leaves during months 13 and 24, then a clawback clause of 50% of their remuneration will apply.
There are several points to be made here:-
- This is totally unfair to the vendor.
- If the employee works for 11 months for the buyer and then leaves, the vendor will have to pay back 11 months salary to the buyer despite the fact that the employee has been working for 11 months in the new firm.
- How is that reasonable? Some one explain that to me.
Needless to say the vendor did not accept this offer. Would you? I would welcome any comments on this if anyone has a reasoned argument as to why this would be acceptable to anyone.
If you want to sell your practice, then call us on 01788 816440 and ask to speak me, to Nicola Draper. If you come to us, we will do our utmost to find a suitable buyer for you. We have brokered over 330 deals, so have a lot of experience in this marketplace. Everything discussed is totally confidential. You can also contact me by email at firstname.lastname@example.org.
Please take care and stay safe.