While most parties focus their negotiations when buying or selling a dental practice on the purchase price and financing terms, for obvious reasons, bring down certificates in dental practice sales are among the most important legal protections during the acquisition process.
As you will see in this article, these documents ensure that the information the seller provided remains accurate until the deal is fully closed. Because of this, carefully drafted bring-down certificates not only protect the buyer but also may increase the sales price, benefiting the seller as well, making them a super important element of Asset Purchase Agreements (APAs).
A bring-down certificate is a document signed at closing that confirms that all representations and warranties made in the APA remain valid and enforceable at that time. This is especially important in dental practice sales, as these transactions can involve significant operational changes during the transaction period.
Scenario: We recently had a dentist who was purchasing a practice in Virginia. Both parties had signed the Asset Purchase Agreement a couple of weeks before closing, which is very typical for a dental purchase/sale. Between signing and closing, the office manager quit, leaving the office barely functioning. Thankfully, for our client, we had Bring-Down Certificates in place, which required the seller to state that all representations and warranties that were true when the parties signed the APA remained true at closing. Because these important, yet often overlooked documents were in place, our client was able to delay closing and renegotiate the purchase price to account for events that occurred between signing and closing.
In ideal scenarios, a dental practice transition will go smoothly. However, in business, things are rarely ideal, and the period between signing and closing the deal is where problems most often occur. The industry and the economy are quite volatile, and many factors can significantly affect the deal and its value - staffing changes, declining revenue, compliance concerns, patient retention issues, and more.
When you combine that with issues that follow the deal, such as prepaid procedures, it is easy to understand why working with an experienced dental transition lawyer from the get-go is a smart choice if you want the dental practice purchase agreement to close as smoothly as possible.
With bring down certificates, buyers get an additional layer of protection. Before finalizing the deal, the seller must once again confirm that the practice remains in the same condition as at the time the agreement was signed.
Bring-down certificates are closely related to the representations and warranties section of the APA. Here are some of the most important provisions to check:
Bring down certificates are there to ensure that these representations are accurate at closing. If not, the buyer will have legal grounds to delay the transaction, request new guarantees, renegotiate terms, or even terminate the agreement if the situation has changed drastically since the APA was signed.
Many dentists severely underestimate the complexity and potential length of a dental practice sale closing process. Even minor issues can quickly compound into major legal and financial burdens. That's why identifying and mitigating risks as early as possible is crucial.
For those reasons, consulting a skilled and experienced dental practice acquisition attorney is one of the best ways to avoid costly errors that can even lead to court disputes.
Sellers should consult legal professionals to ensure the practice complies with the law before listing the business.
On the other hand, dental practice transition lawyers help buyers perform due diligence as early as possible, identify potential issues, and include adequate bring-down certificates in dental practice sale agreements, ensuring the business is in good condition upon closure.
If you are preparing for a dental practice sale or acquisition, contact Finn Legal today to avoid preventable legal issues that could derail your deal.
