CHAPTER 7
Exit Transactions: The Process of Selling an Urgent Care Company
Adam Winger
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ALL GOOD INVESTMENTS MUST come to an end. Options for exiting an investment in an urgent care company include transitioning the business to younger generations in the owner’s family, selling the company’s equity or assets to one or more third parties, or simply ceasing all business operations.
Over the past several years, the exit strategy of choice in the urgent care industry has been the sale to outside investors. This is not surprising in light of the elevated purchase prices that have resulted from the investment interest of private equity investors, hospital systems, and insurance companies.
Although the potential to receive retirement-type money is appealing, the prospect of ending your relationship with a company that has consumed years (and potentially decades) of your life can be both overwhelming and emotional. Further complicating the process of selling your own company in the urgent care context are the many unique regulatory challenges to be overcome to transfer ownership of the business.
This chapter introduces a variety of these challenges. Specifically, it addresses issues relating to transaction structuring, tax, and liability of the seller after the conclusion of the sale. Although the process of selling a business is never without stress, planning for these issues will lead to a smooth transaction that benefits both seller and buyer.
Before delving into the various substantive aspects of an urgent care transaction, it may be helpful to provide a bit of context for the discussion. Nearly all urgent care transactions involve the following chronology:
Before an urgent care seller turns over any confidential information concerning the business, it will generally require that the buyer enter into a confidentiality and nondisclosure agreement. These agreements are frequently referred to as CAs or NDAs.
As their titles suggest, these agreements generally establish the ground rules for the buyer’s use and disclosure of the seller’s confidential information furnished during the course of the parties’ relationship. Although the format of these documents varies, most provide for
A prohibition against disclosure of confidential information
A definition (which can be somewhat lengthy) of the term confidential information
Limited exceptions to the prohibition against disclosure
Obligations of the parties if the transaction is not closed
Legal remedies on a breach of the agreement
Various miscellaneous provisions including the procedure for amending the agreement
In some situations, it makes sense for the disclosure prohibitions to apply to both the buyer and seller. For example, the seller may require evidence confirming that the buyer is capable of paying the purchase price when the transaction closes. This may involve a comfort letter from the buyer’s accountant or provision by the buyer of confidential financial information such as bank statements or bank commitment letter. In these situations, the agreement should provide for mutual disclosure prohibitions.
The following paragraph is an example of a typical provision restricting disclosure of confidential information:
The party receiving Confidential Information [defined elsewhere in the agreement] shall not: (a) except as otherwise provided herein, disclose, disseminate, communicate, or otherwise publish any Confidential Information received under this Agreement to any third party without the prior written consent of the disclosing party; (b) disclose the fact that Confidential Information has been made available under this Agreement; or (c) use any portion of the Confidential Information for any purpose other than evaluating and implementing the proposed transaction.
Exceptions to the general disclosure prohibition typically include the sharing of information with the receiving party’s authorized representatives such as attorneys, accountants, bankers, consultants, and financial advisors, as well as any disclosures required when the receiving party becomes legally compelled to disclose the information.
A final issue frequently addressed in the confidentiality and nondisclosure agreement is the prohibition against either party hiring the employees of the other, typically called a nonsolicitation