Learn why the “No Adverse Events” clause is a key closing condition in dental asset purchase agreements. Protect your investment and avoid post-closing surprises.
Each week, I share a quick insight from my dental law practice. This week’s topic: the “No Adverse Events” clause and why it matters when you’re buying a dental practice.
Scenario: We had a client that had been negotiating and working towards buying an oral surgery practice in the Northeast. Due to some difficulties in coming to an agreement on the valuation of the real estate that was to be purchased as part of the deal, the parties signed the asset purchase agreement in January but were not anticipating closing on the deal until June of the same year. As we got closer to the closing date in June, the lender, as is lending protocol, requested year-to-date profit and loss statements and year-to-date production/collection reports. It was discovered in these reports, a week before we were set to close, that the seller had let collections drop by a staggering 40%. The seller thought the deal was done and dropped his clinical hours significantly during the six months between signing the purchase agreements and closing. Once this was discovered, our client wanted to know what his legal options were.
Answer: In a scenario like this, there are typically two ways to proceed for the buyer. The first is to re-negotiate the purchase price. Practically and legally, this is very straightforward. The buyer and seller decide on a new purchase price to account for the drop in the collections and then an amendment to the purchase agreements is drafted to reflect the new purchase price agreed by the parties.
The second way for a buyer to proceed, which our client ended up doing, is to rely on the “No Adverse Events” clause in the asset purchase agreement. When buying a dental practice, one of the key conditions that must be satisfied before closing is the “No Adverse Events” clause. This clause is designed to protect the buyer from unexpected negative changes in the practice between signing the asset purchase agreement and the closing date.
A typical provision might read something like:
“There has not been any event or condition of any character on or before the Closing Date that has materially and adversely affected the financial condition, business, Purchased Assets or the Practice.”
In plain terms, this means that the seller must maintain the practice in substantially the same condition as it was when the buyer agreed to purchase it. The practice should not experience any material decline in staff, production, collections, patient base, or other key business elements before closing.
This clause is important for three reasons:
Buying a dental practice involves a lot of moving parts, and this is one clause you definitely don’t want to overlook. A well-drafted “No Adverse Events” condition can save you from big headaches down the road.
If you’re in the process of buying or selling a dental practice, reach out to Finn Legal. We help dentists navigate every step of the deal with confidence.
