Mo’ Investigation Mo’ Problems | Behind the Buy [4/8] [305]
As we go deeper into the buying process, we start to uncover more challenges from our seller and encounter some of the wrenches they are tossing our way. When we last left off in episode three our team was knee deep in due diligence for our buyer, had already penned and signed the Letter of Intent (LOI) and was grappling with this mysterious business broker.
As our team irons out the details on a pivotal deal changing lease for our buyer, the seller’s broker friend starts to stir the pot and our attorneys reach for their running shoes as our team gets ready to jump our first big hurdle.
Even though everyone’s eyes roll, worry not, our attorneys have dealt with his type before, but with every case being different will the other obstacles on the horizon be just too much for our buyer?
Listen to episode 4 of the Behind the Buy series.
Full Podcast Transcript
NASIR: Welcome. My name is Nasir Pasha.
MATT: And I'm Matt Staub.
NASIR: This is our fourth episode on Behind the Buy series where we're walking through the process of buying a business with our client and this one is a doozy. I think this is our first real obstacle and this is also during our due diligence period right after we signed the letter of intent but before the purchase agreement's kind of finalized.
MATT: But this is realistic and an actual transaction, too. Now we've kind of gotten to the substance and the meat of this transaction. Like you said, there's a lot of inter-working pieces and components that are going on. So I think this one's a great listen if someone really wants to understand what's entailed in the purchase of a business.
NASIR: Right. And some of these things, you just can't predict. But in a lot of ways, it's totally predictable. That is you're going to get things that you're not going to expect.
There are some vocabulary words we use here. We want to make sure we define beforehand. First one is earnest money and third-party escrow. In this call, we start talking about how we're going to be depositing a more sizable deposit with a third party escrow as an earnest money. And again, this is not dissimilar from buying a house when you're buying a business. It's kind of the same way. You're actually depositing cash usually with a third party. They're called the escrow agent or the escrow officer, and they retain it in their bank account in trust. They will release those funds upon instruction from both the buyer and seller or as otherwise directed in the actual purchase agreement.
MATT: The next couple of terms we have, we have asset purchase and then we have stock purchase or also equity purchase kind of used interchangeably. So I think we've talked about this in the previous episodes, but an asset purchase in this context would be a situation where you're kind of picking and choosing the items you want to buy from the seller kind of an a la carte way of looking at it. With a stock equity purchase, you're buying everything. That's what we're talking about when we say asset purchase or versus a stock or equity purchase.
NASIR: The next couple of terms are healthcare-related. Our buyer is buying an urgent care. We do have to cover some health industry-specific terms just to make sure that everything is communicated properly. There's just two here. One is CLIA waived testing. That just refers to the urgent care where they have to be certified by CLIA which certain labs have to do that. We find out that, okay, this is not a lab that requires that kind of CLIA license.
The reason that's important is because whether or not we need to transfer that license or get a new license when you're buying the business. The second item is also kind of related to that in the sense we had to see whether we need to transfer any in-network provider agreements as well. Most health care facilities are in-network, meaning they have some kind of contract with an insurance payer to be reimbursed at a certain rate.
As our team irons out the details on a pivotal deal changing lease for our buyer, the seller’s broker friend starts to stir the pot and our attorneys reach for their running shoes as our team gets ready to jump our first big hurdle.
Even though everyone’s eyes roll, worry not, our attorneys have dealt with his type before, but with every case being different will the other obstacles on the horizon be just too much for our buyer?
Listen to episode 4 of the Behind the Buy series.
Full Podcast Transcript
NASIR: Welcome. My name is Nasir Pasha.
MATT: And I'm Matt Staub.
NASIR: This is our fourth episode on Behind the Buy series where we're walking through the process of buying a business with our client and this one is a doozy. I think this is our first real obstacle and this is also during our due diligence period right after we signed the letter of intent but before the purchase agreement's kind of finalized.
MATT: But this is realistic and an actual transaction, too. Now we've kind of gotten to the substance and the meat of this transaction. Like you said, there's a lot of inter-working pieces and components that are going on. So I think this one's a great listen if someone really wants to understand what's entailed in the purchase of a business.
NASIR: Right. And some of these things, you just can't predict. But in a lot of ways, it's totally predictable. That is you're going to get things that you're not going to expect.
There are some vocabulary words we use here. We want to make sure we define beforehand. First one is earnest money and third-party escrow. In this call, we start talking about how we're going to be depositing a more sizable deposit with a third party escrow as an earnest money. And again, this is not dissimilar from buying a house when you're buying a business. It's kind of the same way. You're actually depositing cash usually with a third party. They're called the escrow agent or the escrow officer, and they retain it in their bank account in trust. They will release those funds upon instruction from both the buyer and seller or as otherwise directed in the actual purchase agreement.
MATT: The next couple of terms we have, we have asset purchase and then we have stock purchase or also equity purchase kind of used interchangeably. So I think we've talked about this in the previous episodes, but an asset purchase in this context would be a situation where you're kind of picking and choosing the items you want to buy from the seller kind of an a la carte way of looking at it. With a stock equity purchase, you're buying everything. That's what we're talking about when we say asset purchase or versus a stock or equity purchase.
NASIR: The next couple of terms are healthcare-related. Our buyer is buying an urgent care. We do have to cover some health industry-specific terms just to make sure that everything is communicated properly. There's just two here. One is CLIA waived testing. That just refers to the urgent care where they have to be certified by CLIA which certain labs have to do that. We find out that, okay, this is not a lab that requires that kind of CLIA license.
The reason that's important is because whether or not we need to transfer that license or get a new license when you're buying the business. The second item is also kind of related to that in the sense we had to see whether we need to transfer any in-network provider agreements as well. Most health care facilities are in-network, meaning they have some kind of contract with an insurance payer to be reimbursed at a certain rate.
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