Sale of dental practice

Our client, a successful entrepreneur and sole shareholder of a Dental Practice (the Target), was approached by a consortium consisting of a dental laboratory group and the group’s parent companies consisting of two private equity firms, wishing to acquire the share capital of the Target.

Whilst the buyer was a UK based company, its parent company was the above consortium based in Lichtenstein. The dental laboratory group was expanding and wanted to purchase small, pioneering dental practices- of which our client’s business was one. This would allow the buyer to achieve their aim of becoming an EU market leader in digital dental prosthesis and orthodontics.

Our client instructed Gannons due to his previous positive relationship with us when then the Target acquired a small dental practice a few years ago.

Challenges Faced

Gannons handled the due diligence process and disclosures on behalf of the Target, which extended to tax matters involving the Target.

In order to obtain the best deal for our client, Gannons undertook extensive negotiations on his behalf. The share purchase agreement (SPA) contained several clauses that posed challenges.

For example the Target company was to receive several Government rebates for research and development work carried out during our client’s tenure as its sole shareholder and director. There was also a subsidiary company of the Target which was to receive some of the rebates in the future. However, the buyer made it clear that it did not want to acquire the subsidiary company. We assisted by transferring the shares in the subsidiary into the name of our client so that the buyer was then able to acquire the Target as a stand-alone company, which was its intention to do from the outset.

Our client was also to be employed in the Target after the sale of the shares was complete. Whilst there were extensive restrictive clauses within the contract of employment under which our client was being employed in the Target, we negotiated to ensure his employment contract provided him ample protection.

As part of the share acquisition transaction, our client was required to re-invest part of the funds he received back from the sale into the buyer’s parent company in Lichtenstein for an agreed number of years, which re-investment was to be done by signing a deed of adherence to an existing shareholder agreement of the parent company. This shareholder agreement contained additional restrictive covenants, and being a foreign investment agreement which pre-existed the share acquisition transaction relating to the acquisition of the Target, Gannons ensured that the restrictive covenants within that shareholder agreement were no more onerous than, nor overlapped any of the restrictive covenants in, our client’s new contract of employment.

Outcome

The outcome was that Gannons ensured the various elements constituting or being set off against, the purchase price was correctly included or taken account of so that client’s desired, and agreed sale price was achieved at completion. Crucially, we assisted (via a side letter) our client to continue with some of his existing dental work such that it wouldn’t be caught by any restrictive covenants.

We also obtained, on behalf and for our client, a guarantee in the form of a comfort letter from the parent company of the buyer that he would receive all of his future payments to be paid by the buyer under an Earn-Out clause in the SPA. This provided our client the comfort of knowing that the buyer, being a newly incorporated company with no funds of its own except its consortium partners’ investments, was nevertheless able to meet its financial obligations under the SPA.