August 31, 2011
It is a rare healthcare company that has no regulatory risk exposure in at least a few material areas. As sellers of healthcare companies prepare them
for sale, they will need to navigate first the letter of intent (LOI) stage with potential buyers and ultimately the more detailed definitive
agreements.
The key differences between negotiating deal points at the LOI stage versus the same negotiation at the definitive agreement stage are leverage and
information. At the LOI stage, the buyer is often still trying to get the deal (especially in an auction environment) and is operating with limited
visibility into the potential magnitude of issues. The seller often knows more about potential issues but believes the realistic exposure (vs.
worst-case scenario exposure) is relatively small. Once the LOI is signed, the leverage in the hands of the buyer often increases as the closing of the
transaction becomes more certain usually a key desire of the seller and arguments that the buyer should absorb more risk usually devolve into
re-pricing negotiations which the seller wants to avoid.
What should a seller do or not do at the LOI stage?
None of these strategies can fully insulate a seller from the impact of known regulatory issues on the sale process; but they can minimize the pain, expense and delay that these issues often cause.
McGuireWoods LLP Healthcare Group
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