There is nothing more expensive than a cheap lawyer01 Apr 2019 - Simon Palmer and Julian Whitehead - Business Broker Vet Practice Sales
The stakes are high in practice sale transactions. You are possibly selling a practice with clients of long standing, who you have nurtured for many years, or you are purchasing a practice which you hope will provide the best opportunity for you, so that you can enhance its potential and your income, in your own comfort zone.
Financially, a practice usually sells for amounts in the hundreds of thousands or millions of dollars. There are also important non-financial qualitative aspects of the deal, like transferring staff, client relationships and a reputation that has been built over decades, and post-sale work commitments for the vendor that can last from 6 months to 5 years. The transaction itself is usually documented with three or four legal contracts (1. a business sale agreement, 2. a premises lease contract or premises sale contract, 3. a work contract for the vendor post sale, and 4. a partnership/associateship agreement if there are equity partners/associates). With all of this at stake, you would think that a buyer or vendor would want to make sure that they get appropriate legal representation, to ensure that they get what has been promised to them and to protect themselves from future risk.
Unfortunately, that isn’t the way that the selection process seems to go for many in the veterinary industry. Regularly:
- Veterinarians decide to save themselves the bill and handle the matter themselves.
- Professionals like veterinarians are often surrounded by other professionals, and a lawyer is never more than one degree of separation away. Regularly, a vet’s brother-in-law, cousin, neighbour, friend or acquaintance at the golf course is a lawyer who says that they will do the job and give them a discount on the work.
- They ask a lawyer who they previously used for immigration, divorce, litigation, real estate conveyancing, estate planning, employment contracts. When asked, the lawyer says that they can handle it.
- They get a referral from a friend or their accountant, who has had a good experience using a lawyer for an unrelated matter (immigration, divorce, litigation, real estate conveyancing, estate planning, employment contracts).
These are all approaches that will probably get the job done for a seller or a buyer… But:
- Will it get the job done well?
- A friend or family member lawyer will sometimes over-service a client who they feel indebted to, trying to win points by pushing for creative, unprecedented conditions.
- A friend or family member lawyer will sometimes under-service a client, because they aren’t getting paid properly and begrudge having to do the work cheaply (or for free) out of familial obligation.
- A lawyer unfamiliar with commercial law will not have the same eye for commercial risk and experience with clauses that would help their client.
- A lawyer unfamiliar with veterinary practice sales is prone to producing inappropriate contracts and often struggles with due diligence compliance, thereby missing industry norms and risks facing their client, and the legal protection that their clients need.
- Veterinary practices are idiosyncratic. Acting in a veterinary practice transaction is not necessarily the same as acting in the sale of a beauty salon, café or a multi-naitonal corporation!
- Is this the way we select professionals for any other high-stakes transaction?
- If a veterinarian needed surgery on their hand, would they try to do it themselves?
- If your GP cousin offered to do it on the cheap, would you take them up on it?
- Would you go to a foot surgeon for an ear, nose or throat problem?
Most people would recognise that the best way to select assistance for a complex task is to ask:
- Someone qualified to do that task
- Someone who has done that complex task 100+ times before (because they will likely do a better job than someone who has trained for a different task and is doing it for the first time)
What this means, as far as a veterinary practice sale is concerned, is finding someone:
- With a legal qualification
- Who handles commercial transactions for a living (rather than immigration or conveyancing)
- Has experience in the veterinary industry, can communicate with veterinary knowledge and understands the operational process, knows the industry risks and norms, where problems arise and where their client needs to be protected from industry specific liabilities
- Who can give you peace of mind
This might seem like self-serving advice, being that one of the authors of this article is a lawyer who has a practice that specialises in practice sales. It is self-serving, but not in the way that you think. The primary aim of this article isn’t to drum up more clients. It is to ensure that the transactions of the clients who have already engaged either author are able to be completed as efficiently as possible – this becomes difficult if the other side is combative, unfamiliar with the operational side of veterinary practices and is asking for uncommercial terms which can derail the deal. To play a game of tennis it relies on people on both sides of the net knowing what they are doing.