How to Compare Two Letters of Intent for Your PT Practice

Getting two letters of intent is a good problem. It means buyers want your practice. But the offers almost never line up neatly.

One buyer leads with a big number. The other offers more cash up front. One wants you to stay three years. The other wants a long non-compete. Here is how to compare them without being fooled by the headline price.

Why the headline price misleads

A letter of intent, or LOI, sets out the main terms of a proposed deal. The price at the top is the number everyone remembers. But that number often bundles together money paid today, money paid later, and money that may never be paid.

Your job is to break each offer into its parts. Then you compare the parts, not the totals.

The terms to pull from each LOI

Read each LOI and record these items:

• Cash at closing. Money you receive on the day the deal closes.
• Seller note. Price paid over time, with its rate, term and security.
• Earnout. Price that depends on future results, with its targets and period.
• Holdback or escrow. Price withheld for a period to cover claims.
• Employment terms. How long you must work, your role, and your pay.
• Non-compete. How long and how far you cannot practice or own a competing clinic.
• Exclusivity. How long you cannot talk to other buyers once you sign.
• Conditions. What must happen before closing, such as financing, landlord consent or diligence.

If an LOI proposes a stock purchase, a sale of membership interests, or rollover equity, note it. Those structures involve securities and are outside what Truecrest handles. A registered broker-dealer handles them.

Build one comparison sheet

Put every offer on a single page, side by side. Use the same rows for each. This keeps you from comparing one buyer's strengths to the other buyer's weaknesses.

Then add one more row: your own estimate of what each offer is realistically worth to you. That estimate is where judgment comes in.

A worked hypothetical

Say two buyers make offers on your single-location clinic.

Buyer A offers $1,800,000. That breaks down as $1,200,000 cash at closing, a $300,000 seller note over four years, and a $300,000 earnout over two years. Of the cash, $100,000 is held in escrow for 12 months.

Buyer B offers $1,600,000. That is $1,400,000 cash at closing and a $200,000 seller note over three years. There is no earnout. Of the cash, $80,000 is held in escrow for 12 months.

Now compare cash in hand at closing. Buyer A pays $1,200,000 minus the $100,000 escrow, so $1,100,000. Buyer B pays $1,400,000 minus the $80,000 escrow, so $1,320,000. Buyer B puts $220,000 more in your hands on day one.

Next, look at the earnout. Suppose you judge there is about a 50 percent chance of earning Buyer A's full $300,000. A rough risk-adjusted value is $150,000.

Now total each offer using that estimate. For Buyer A, that is $1,200,000 cash plus the $300,000 note plus $150,000 for the earnout, or $1,650,000. For Buyer B, it is $1,400,000 cash plus the $200,000 note, or $1,600,000.

Buyer A still looks $50,000 ahead. But that lead depends on a longer note and an uncertain earnout. Buyer B pays more today and finishes paying a year sooner. Many owners would choose Buyer B. Both escrows are assumed to be released in full here, which is not guaranteed.

These figures do not include interest on the notes or any discount for waiting. Adding those would usually narrow Buyer A's lead further.

The terms that are not money

Price is not the only thing that changes your life after the sale. Compare these just as carefully.

Employment terms decide how you spend the next few years. A three-year commitment at reduced pay is a real cost if you wanted to step back. A non-compete limits where you can practice later. Read its length and its radius.

Exclusivity matters before you even close. A long exclusivity period takes you off the market while the buyer does diligence. If that buyer walks away, you have lost time and momentum. Shorter is better for you.

Conditions decide how likely the deal is to close. An offer that depends on the buyer finding financing is less certain than one that does not.

Your next step

Take any offers you have, or a sample LOI, and build the comparison sheet using the rows above. Fill in cash at closing first. That one number often clarifies more than the headline price. Have your transaction attorney review any LOI before you sign it.