Among the many acronyms that come along with a practice transition are APA, SPA, and MIPA. Each of these represents a different type of purchase, and the one you choose will have implications on the sale, taxes, and the future of the business. If you plan to buy or sell a healthcare practice, it’s important to be fluent in these three purchase types. Here, we’ll define each one, weigh the pros and cons, and help you determine which is right for you.
Want more healthcare M&A definitions? Visit an entire glossary defining key terms here.
What are the different types of purchases?
There are three primary types of purchases: asset purchase, stock purchase and membership interest purchase. We’ll define them below in the context of the agreements used, and share pros and cons for each.
Asset Purchase
In an asset purchase, the parties utilize an Asset Purchase Agreement (APA). An APA is a legal agreement specifying which of the assets are being sold and the terms under which they are transferred from the seller to the buyer. In an asset purchase, the buyer creates a new legal entity (PLLC or PC) in which to acquire the assets of the selling entity. The selling entity then generally winds down (dissolves) after the transaction is complete.
There are pros and cons of this strategy. One plus is that the buyer gets a fresh start, meaning that they generally will not inherit any seller legacy issues (e.g. - skeletons in the closet, such as unpaid debts and malpractice suits). However, a significant downside is that the selling entity may have been credentialed with dozens of insurance payers. As a brand new entity, the buyer now has to begin the credentialing process all over again.
Stock Purchase
During a stock purchase, a Stock Purchase Agreement (SPA) is used. In this arrangement, the buyer acquires the stock of the existing practice entity without forming a new legal entity; think of it as the buyer stepping into the shoes of the seller.
This type of transaction allows the buyer to avoid the aforementioned processes of credentialing under a new legal entity. Though seemingly convenient, a buyer must keep in mind that the business’s history, legacy, and any unwanted liabilities could carry over as well.
Much like buying a house, the buyer’s legal counsel will conduct a search to identify what liabilities exist and address them prior to closing. However, there is an increased risk for successor liability (a legal term of art for a situation where the buyer inherits the seller's obligations).
Membership Interest Purchase
Finally, a membership interest purchase calls for the use of a Membership Interest Purchase Agreement (MIPA). The MIPA is similar to an SPA, but used when the business being sold is an LLC or PLLC, as opposed to a PC. The buyer in this case is acquiring “membership interests” rather than stock. Functionally, the transaction is the same as a stock purchase.
Which deal structure is right for you? APA, SPA, or MIPA?
It’s important to determine the right type of purchase on a case by case basis. As both a buyer and a seller, the purchase type can impact the sale price, transaction complexity, and tax outcomes. Whether you’re buying or selling it’s important to have the support of a legal team, financial analysts, and a CPA to negotiate the best deal structure during the process. Reach out to our team for guidance in your M&A transaction.
留言