The Optometrist's Guide to the Practice-Sale LOI

A letter of intent is usually short, but it can establish the framework for the entire transaction. Independent optometrists should understand the business and legal implications of the key provisions before signing.

1. Purchase Price

The headline number can be misleading. Start by understanding exactly what is being purchased and what is excluded. For example, are accounts receivable included? How is inventory treated? Is the price fixed or subject to adjustment? A buyer and seller can agree on the headline price and still have materially different expectations about what that number actually includes.

2. Cash at Closing, Seller Financing and Holdbacks

The timing and certainty of payment matter. A $1 million price paid entirely at closing is economically different from a $1 million price that includes a seller note, escrow, holdback or contingent payment. The LOI should describe the basic payment structure clearly.

3. Earnouts and Contingent Consideration

If any portion of the purchase price depends on future revenue, EBITDA, collections, continued employment or another post-closing metric, the parties should understand how the metric is calculated, who controls the business decisions that affect it, and what happens if the buyer changes operations.

4. Rollover Equity

In sales to larger groups and other strategic buyers, the seller may be asked to reinvest or “roll” a portion of the sale proceeds into equity of the buyer or its parent company. Rollover equity can provide meaningful upside, but it is not the same as cash at closing. Understand the entity in which you are investing, the valuation used for the rollover, your ownership rights, transfer restrictions, dilution risk, repurchase rights, liquidity expectations and what happens to the equity if your post-closing employment ends.

5. Asset Sale vs. Equity Sale

The transaction structure can affect taxes, liabilities, contracts, licenses and operational continuity. Many optometry practice transactions are structured as asset sales, but the right structure depends on the entity, buyer, tax considerations and contractual relationships involved.

6. Purchase Price Allocation

Allocation among tangible assets, goodwill, restrictive covenants and other categories can have different tax consequences for buyer and seller. It should not be treated as an afterthought.

7. Accounts Receivable

Who owns receivables generated before closing? Who collects them after closing? How are payments that relate to both pre- and post-closing services handled? The LOI should establish the basic economic treatment rather than leaving the parties to discover different assumptions during definitive-document negotiations.

8. Working Capital Peg

Some transactions require the seller to deliver a specified amount of working capital at closing. The “peg” is the target against which actual closing working capital is measured, with the purchase price adjusted upward or downward for the difference. Understand which current assets and liabilities count, how the target is calculated, whether cash and debt are excluded, and whether the methodology reflects the practice’s normal operating cycle. A seemingly technical working-capital provision can change the cash the seller actually receives at closing.

9. Real Estate

If the practice leases its office, consider assignment rights, landlord consent, guarantees, renewal options and whether the buyer wants a new lease. If the seller owns the real estate, the LOI should address whether the property is sold, leased to the buyer or excluded.

10. Post-Closing Employment

When a seller will remain with the practice, compensation, schedule, benefits, term, termination rights, clinical responsibilities and restrictive covenants can be just as important as the purchase price.

11. Restrictive Covenants

Noncompetition and nonsolicitation provisions should be evaluated in light of geography, duration, scope of services and applicable state law. A seller should understand the practical impact on the ability to continue practicing after a future separation from the buyer.

12. Exclusivity / No-Shop

Exclusivity may prevent the seller from considering other offers for a period of time. The duration should be appropriate to the buyer's diligence and financing process, and the seller should understand what happens if the buyer does not move efficiently toward closing.

13. Due Diligence

The LOI should identify the expected diligence process and timeline. For an optometry practice, diligence can involve financial records, managed-care agreements, leases, employment arrangements, laboratory and vendor contracts, equipment, corporate records and regulatory matters.

14. Managed Care and Credentialing

Vision-plan participation and reimbursement can be central to practice economics, and credentialing frequently takes longer than the parties expect. Before signing the LOI, identify the major plans, determine whether existing participation can continue after closing, and build realistic credentialing timing into the closing and transition plan.

If the buyer will not be credentialed with important plans on the closing date, the parties may need a transition arrangement for the interim period. That arrangement should be evaluated carefully: who provides and bills for services, who receives collections, how expenses are allocated, how long the transition lasts, and whether the proposed structure is permitted by the applicable payer agreements and law. Credentialing should not first become a closing problem a few days before the transaction is scheduled to fund.

15. Financing Contingency

A buyer relying on third-party financing should consider whether the LOI and definitive agreement preserve a realistic financing condition and sufficient time to satisfy lender requirements.

16. Closing Conditions

The LOI should identify major conditions that could prevent closing, including financing, landlord consent, third-party approvals, regulatory requirements and satisfactory diligence.

17. What Is Binding?

Most LOIs state that the principal transaction terms are nonbinding while selected provisions—often confidentiality, exclusivity, expenses, governing law and access to diligence—are binding. The document should make that distinction clear.