If you own a dental, veterinary or optometry practice in Western Pennsylvania, you have probably been contacted by a private equity backed group that wants to buy it. These transactions can be good outcomes. They are also drafted entirely by the buyer, who has done this a hundred times and will do it a hundred more, while you are doing it once. Ament Law Group represents both buyers and sellers in these transactions, though never both in the same one. For a seller that means reading the letter of intent before you sign it, testing the earnings adjustments behind the headline price, negotiating the management services agreement where the real economics sit, and handling the real estate and the tax clearances that come with it.
Start With What the Letter of Intent Binds You To
The approach is usually informal. A call, a request for three years of financials and a production report, a conversation that is complimentary about your practice, and then a letter of intent with a number on it.
The letter will say it is non-binding. That is true of the parts you are focused on. The price, the structure and the timeline are all expressions of intent and all of them will move before closing, usually downward and usually after the buyer completes diligence.
What is typically binding is the rest of it: confidentiality, sometimes an expense provision, and an exclusivity or no-shop covenant. The no-shop is the one with teeth. It commits you to negotiating with that buyer and no one else for a defined period, commonly sixty to ninety days, and it removes the only leverage a seller reliably has, which is a second interested party. Buyers know this, which is why the no-shop sits in a document presented as a formality.
None of that means do not sign. It means the window should be as short as you can get it, it should start when diligence materials are delivered rather than on signature, and you should know what you are giving up when you agree to it. This review is inexpensive and it is the highest-value hour in the entire transaction.
Adjusted EBITDA, and the Add-Back That Sets Your Price
Practices are priced as a multiple of adjusted earnings. Owners negotiate the multiple. The adjustments decide the money.
The dominant adjustment is your own compensation. A buyer does not care what you pay yourself. They care what it will cost to replace the clinical work you do, so they subtract a market-rate associate salary for your production. In an owner-operator practice where the owner performs most of the clinical work, that single line can reduce stated earnings dramatically, and it is applied before the multiple is ever discussed.
Adjustments run the other way too, and these are yours to argue for:
- Expenses a new owner would not carry. A vehicle, a spouse or child on payroll above the value of work performed, personal travel, continuing education beyond what the practice requires, memberships.
- Rent above market if you own the building through a separate entity and have been paying yourself generously. That rent depresses the earnings the practice sells on, and it should be normalized to market, in your favor.
- One-time costs. An equipment purchase, a build-out, a legal matter, a bad-debt write-off that will not recur.
- Recent growth the trailing numbers understate. A hygienist added nine months ago, a second operatory opened last year, a service line just starting to produce. Buyers price on trailing twelve months. If your trajectory is upward, the trailing figure is the wrong number and you should say so with evidence.
An owner who pushes the multiple from 5.5 to 6.0 while accepting an aggressive compensation normalization has usually given up far more than they gained. We work the add-back schedule with your CPA, because that is where the negotiation actually is.
What Portion of the Price Is Cash
A stated purchase price is rarely a cash purchase price. The components to separate out:
- Cash at closing. The only part that is certain.
- Rollover equity. Shares in the acquiring platform instead of cash. Discussed below, and routinely overvalued by sellers.
- Escrow or holdback. A portion held back, often ten to fifteen percent for twelve to eighteen months, as security against breaches of your representations. Whether claims against it are capped, what the deductible is, and whether it is your sole exposure or merely the first layer are all negotiable, and the difference between those two is large.
- Earnout. Additional consideration contingent on post-closing performance. The problem is structural: after closing you no longer control pricing, staffing, scheduling, supply contracts or the fee schedule, and all of those drive the metric your earnout is measured against. If there is an earnout, the metric must be defined precisely and there must be covenants preventing the buyer from operating the practice in ways that defeat it.
- Seller note. You financing part of your own sale, with whatever subordination the buyer's lender requires, which is usually total.
Written out this way, two offers with the same headline can differ by a great deal in what you actually receive and when. We produce that comparison before you choose between them.
Rollover Equity: You Become a Minority Investor
Rollover equity is the term sellers most often accept without pricing. Taking shares in the platform is presented as alignment and upside, and sometimes it genuinely is. It is also a decision to invest a large part of your retirement in a single private company, chosen by someone else, on terms you did not set.
What to establish before agreeing to it:
- What are you receiving shares in, and where does it sit in the capital structure? Common equity beneath a preferred stack with a liquidation preference may receive nothing in a mediocre exit, even one that looks like a success.
- What valuation are your shares issued at, and is it the same valuation the sponsor paid?
- How will you be diluted as the platform acquires more practices, and do you have any protection?
- When do you get paid, and what happens if the sponsor's exit is delayed or occurs at a lower valuation?
- What are you obliged to do on a sale? Drag-along provisions can require you to sell on terms the majority accepts, including giving representations and indemnities.
- What information are you entitled to as a holder? Many sellers discover they have no right to financial statements of the company holding a third of their net worth.
Our strong preference is that you treat rollover as an investment to be evaluated, not as purchase price. If it would be imprudent to put that sum into one private company on those terms, it is imprudent here too.
The Structure Pennsylvania Requires
Pennsylvania treats dentistry, medicine, optometry and veterinary medicine as restricted professional services, and the entity that delivers clinical care must be owned by licensed practitioners. A corporate buyer therefore cannot purchase your practice the way it would purchase a landscaping company.
What happens instead is a two-part structure. A licensed practitioner, sometimes you for a transition period and sometimes a practitioner affiliated with the buyer, owns the professional entity. The buyer acquires the non-clinical assets, the equipment, the leasehold, the records systems, the trade name and the goodwill, and then enters a long-term management services agreement with the professional entity under which it provides administration, staffing, billing and purchasing in exchange for a management fee.
The consequence worth absorbing: the management services agreement is the transaction. It governs who sets the fee schedule, who hires and fires staff, what supplies and labs are used, how the management fee is calculated, what happens on default, how long it runs and how it terminates. It typically outlasts your employment agreement by years. And in our experience it receives a small fraction of the scrutiny sellers give the purchase agreement, which is the reverse of the attention it deserves.
Whether the asset purchase is structured as an asset or equity transaction also drives tax treatment and which liabilities travel with the practice. See asset versus stock purchase.
You Work There Afterward
Nearly every one of these transactions requires the selling practitioner to stay, typically two to five years, because the buyer is purchasing a revenue stream that currently depends on you. The terms of that employment are part of the price, not an administrative detail.
- Compensation. Usually a percentage of collections, often below what you currently take, and sometimes with a guaranteed floor for an initial period only.
- Clinical autonomy. Who decides treatment protocols, appointment length, materials and labs. This is where post-sale dissatisfaction most often originates, and it is addressable in the agreement.
- Production expectations and what follows from missing them.
- Termination. What constitutes cause, what notice applies, and critically, what happens to unpaid earnout, holdback and rollover equity if you are terminated or if you resign. A buyer that can terminate you without cause while holding your earnout has an obvious incentive, and the drafting should remove it.
- The non-compete. Radius, duration and what activity it covers. If you intend to practice part-time afterward, in any capacity, raise it now, because a standard covenant will prohibit it and will be far harder to change later.
The Building
If you own your real estate, you are running two transactions at once. Keeping the building and leasing to the buyer turns it into an income stream with a tenant that has every reason to stay, and the lease becomes a significant retirement asset in its own right, so term, escalations, renewal options, maintenance responsibility and whether the parent guarantees the local entity's obligations all matter. Selling it produces cash and a clean break, and where the gain is large a 1031 exchange is worth evaluating before closing, not after.
What should not happen is the building being decided in the final week, which is when it usually is. See commercial real estate, and note that Pennsylvania realty transfer tax may apply depending on how an interest in real estate moves.
Pennsylvania Tax and Clearance Items
These are the items that delay closings and occasionally reduce proceeds, and they are better handled early:
- Bulk sale clearance. Pennsylvania requires a clearance certificate on the sale of a substantial portion of a business's assets, and a buyer that does not receive one can face successor liability for the seller's unpaid taxes. Buyers accordingly insist on it or escrow against it. Applications take time. See bulk sale clearance certificates.
- Purchase price allocation. How the price is divided among equipment, goodwill, the non-compete and the management agreement drives your tax, and the buyer's preferred allocation is frequently not yours. This is negotiated, and it is negotiated with your CPA at the table.
- Personal goodwill. In some practices a portion of goodwill may be personal to the practitioner rather than owned by the entity, which can change the character of that income. It is fact-dependent and it depends partly on what agreements you have already signed, so it is a question to raise with your accountant early rather than at closing.
- Realty transfer tax, if the real estate or an interest in the entity holding it moves.
- Accounts receivable and work in progress. Who collects the receivables generated before closing, and who is credited for treatment started but not completed, are ordinary sources of dispute that a clear provision prevents.
What the Sale Forecloses
One consequence of selling deserves to be understood before you decide, because it is counterintuitive and it is rarely mentioned by anyone on the buyer's side.
Pennsylvania exempts qualifying family-owned business interests from inheritance tax under 72 P.S. section 9111, subject to conditions on the size and age of the business, who receives the interest, and how long they hold it. An operating practice may qualify. A brokerage account holding the proceeds of that practice does not. For a practice owner with a child who is also a licensed practitioner, a sale can convert an interest that might have passed exempt into cash that is fully taxable at the lineal rate.
That is not an argument against selling, and for most owners the offer is still the right answer. It is an argument for running the comparison deliberately, with the family-owned business exemption and an intra-family transfer treated as a real alternative rather than a sentimental one. See also transferring a business to family.
And once the money arrives, the planning problem changes shape entirely: a concentrated, illiquid asset becomes a liquid one, the estate becomes larger and simpler to tax, and decisions you could defer for years now have deadlines. See sudden wealth planning and high net worth planning.
How We Work These
We read the letter of intent before you sign it, work the earnings adjustments with your accountant, separate the headline price into what is cash and what is contingent, negotiate the purchase agreement and the management services agreement together rather than treating the second as paperwork, handle the lease or the sale of the building, and clear the Pennsylvania tax items that have to be cleared. Then we update your estate plan to reflect what you now own, which is a different thing than what you owned before.
The best time to call is when the letter of intent arrives and before it is signed. The second best time is now, if you expect to be approached, because the things that improve your position, clean financial records, a market-rate rent, a current lease with real remaining term, documented recent growth, take months rather than days.
Bring the letter of intent if you have one, three years of financials, the lease or deed, your entity documents and any partner agreement. The first meeting is free.
What Representation Costs
Our fee sheet sets out how the work is priced at each stage: the letter of intent review, the transaction, the real estate, and the estate plan afterward. It gives a fixed fee for reading the letter of intent, sets out exactly what the transaction fee covers and what moves it, and explains why we would usually rather draft the purchase agreement than review theirs. We will email you a copy.
Prefer to talk it through? Call (724) 733-3500 and we will tell you what your situation would run.
Frequently Asked Questions
The letter of intent says it is non-binding. Can I just sign it?
Read it for what is binding before you do. The price, the structure and the closing date are genuinely non-binding and will move. The exclusivity or no-shop clause, the confidentiality obligation, and sometimes an expense reimbursement provision usually are binding, and the no-shop is the one that costs money. It can commit you to dealing with that buyer alone for sixty to ninety days, which eliminates the possibility of a competing offer, and the possibility of a competing offer is the only real leverage a seller has. Negotiating the length of that window, or the terms that have to be met before it starts, is worth doing.
What is adjusted EBITDA, and why is my number so much lower than I expected?
EBITDA is earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is that figure after the buyer normalizes it, and the single largest normalization is your own compensation. The buyer subtracts what it would cost to hire an associate at market rates to perform the clinical work you personally do, because after closing they have to pay that person. A practice collecting $1.6 million where the owner produces most of the dentistry can see its earnings cut substantially by that one adjustment. The multiple gets the attention. The add-back schedule decides the price.
What is rollover equity and should I accept it?
Rollover equity means part of your price is paid in shares of the acquiring platform rather than cash. It is common, and it is not inherently bad, but you should price it honestly: it is illiquid, you will have no control, you can be diluted by later acquisitions, and you are typically paid only when the sponsor sells the platform, which may be three to seven years out and may happen at a lower valuation than today's. A six times offer where forty percent is rollover is not a six times offer. It is a cash offer at a lower multiple plus an investment you did not choose, in a company whose books you have not seen.
Can the buyer actually own my practice in Pennsylvania?
Not the clinical entity. Pennsylvania treats dentistry, medicine, optometry and veterinary medicine as restricted professional services and limits ownership of the entity delivering patient care to licensed practitioners. The structure used instead is a management arrangement: a licensed practitioner continues to own the professional entity, and the buyer acquires the non-clinical assets and enters a long-term management services agreement that directs the practice's operations and takes its economics as a management fee. That agreement is the deal. It often receives a fraction of the attention the purchase agreement gets, and it generally lasts far longer.
How much of the purchase price do I actually receive at closing?
Less than the headline, and the gap is worth calculating before you negotiate anything else. Between rollover equity, an escrow or holdback against breaches of representations, an earnout tied to post-closing performance, and sometimes a seller note, it is common for well under three quarters of the stated price to arrive as cash at closing. We work out the cash-at-closing figure and the realistic range on everything else, so you are comparing offers on the same basis rather than on headlines.
I have to keep working there after the sale?
Almost always, for two to five years, at compensation that is usually lower than what you pay yourself now, often with production expectations attached. This is not a side term. It determines what your life looks like for the next several years and it interacts with the money: if an earnout depends on performance you no longer control, or if you can be terminated without cause while an earnout is still outstanding, the deal is worse than it reads. What happens to your unpaid consideration if they fire you, or if you leave, is a provision to settle before closing.
Will selling affect my estate plan?
Significantly, and in a direction people do not expect. Pennsylvania exempts qualifying family-owned business interests from inheritance tax under 72 P.S. section 9111, and an operating practice may qualify. Sale proceeds do not. A sale can convert an asset that might have passed to your children exempt into cash and securities that are fully subject to the tax. That is not a reason to refuse a good offer, but it is a reason to run the comparison before you sign, and to revisit your plan afterward rather than years later.