Happy Thursday! Hope February is treating you well.
Quick reality check: Most practice owners focus on the headline number in their LOI—$8M, $10M, $12M—without realizing that how that number is structured often matters more than the number itself.
We've seen owners sign LOIs thinking they're getting $8M cash at close, only to discover they're actually getting $5M up front, with the rest tied to earnouts they may never hit.
So this week, we're breaking down the 3 deal structures you need to understand before you sign anything.
Structure 1: Asset Sale vs. Stock Sale
What It Means:
An asset sale means the buyer purchases the individual assets of your practice—patient files, equipment, lease, brand, and goodwill.
You (the owner) retain the corporate entity and are responsible for any remaining liabilities.
A stock sale means the buyer purchases your company itself—they own the whole legal entity, including any liabilities, contracts, and hidden obligations.
Why It Matters:
From a buyer's perspective: They prefer asset sales because they get a "clean" purchase without inheriting unknown liabilities.
From a seller's perspective: This is where your tax bill gets determined.
Tax Implications:
In an asset sale, the buyer allocates the purchase price across different assets (goodwill, equipment, patient files, and non-compete agreements).
This allocation determines your tax liability.
Goodwill is taxed as ordinary income—meaning you pay short-term capital gains rates, which can be 37% federal + state taxes combined.
In a stock sale, you're selling the company itself.
The entire proceeds are typically taxed as capital gains (potentially lower than ordinary income), but you inherit any corporate liabilities.
Illustrative Scenario:
Multi-location med spa practice, Florida, $8M sale price.
If structured as an asset sale:
Buyer allocates: $5M to goodwill, $2M to equipment, $1M to non-compete
Your goodwill is taxed as ordinary income: $5M × 37% (federal + state) = $1.85M in taxes
You net: $8M - $1.85M = $6.15M after taxes
Same practice, stock sale structure:
Entire $8M is capital gains: $8M × 20% (long-term capital gains rate) = $1.6M in taxes
You net: $8M - $1.6M = $6.4M after taxes
That's a $250K difference just because of how the deal was structured—and the buyer got what they wanted (asset sale protection) in the first scenario.
What to Watch For:
Ask your tax advisor and M&A lawyer how the buyer plans to allocate the purchase price before you sign.
Some allocations are more favorable to sellers than others.
Don't leave this to chance.
Structure 2: Earnout Structures (Deferred Payment)
What It Means:
An earnout is money you don't receive at closing—instead, it's paid to you later (usually 1-3 years) based on the practice hitting certain financial or operational targets.
Example: $8M sale price broken down as:
$5M cash at close
$3M earnout (paid over 3 years if you hit EBITDA targets)
Why Buyers Love Earnouts:
Earnouts reduce the buyer's risk.
If something goes wrong post-acquisition, they don't lose as much cash.
They're also a way for buyers to tie your hands—you stay involved to help hit those targets (which is why earnout periods often require seller involvement as a consultant or in an advisory capacity).
Why Earnouts Are Dangerous for Sellers:
Once you've signed, you have limited control over the factors that determine your payout.
The buyer controls the financials, the accounting, and the operations.
We've seen countless situations where:
The buyer "adjusts" expenses to lower reported EBITDA (thus lowering your earnout)
The buyer changes pricing, staffing, or operational decisions that impact profitability
The buyer makes acquisition-related charges against EBITDA (integration costs, corporate overhead allocation)
You miss the earnout by a small margin and lose six figures
Illustrative Scenario:
Oral surgery practice, Florida, $9M sale:
$6M cash at close
$3M earnout (payable over 3 years if EBITDA maintains at $1.2M+ annually)
Owner's expectation: "I sold for $9M, and I'll get the earnout easily since we've done $1.2M+ EBITDA for the last 5 years."
What actually happened:
Year 1: Buyer integrated the practice, hired new staff, added corporate overhead allocations. Reported EBITDA: $950K. Owner gets $0 earnout that year.
Year 2: Buyer adjusted the lease terms, increased lab costs. Reported EBITDA: $1.05M. Owner gets $0 earnout.
Year 3: Practice is running well, but buyer claims integration costs and depreciation adjustments. Reported EBITDA: $1.15M. Owner gets partial earnout (~$300K instead of $1M expected).
Total payout: $6M + $300K = $6.3M instead of the $9M expected.
That's a $2.7M shortfall.
What to Watch For:
Earnout thresholds: Are they realistic? Can you influence them post-close?
Earnout calculations: Will they use the same accounting methods you used, or will the buyer adjust?
Holdback vs. earnout: Some deals use "holdback" (buyer withholds cash) instead of earnout. Holdback is typically safer because it's held in escrow and released if conditions are met, rather than the buyer calculating what you're "owed."
Seller involvement: How much time will you need to spend to hit earnout targets? Are you paid for that time?
Section 3: Rollover Equity (Reinvestment)
Rollover equity means you don't receive 100% of the sale proceeds in cash.
Instead, you reinvest a portion back into the buyer's entity, typically in the form of equity (stock or ownership units).
Example: $10M sale with 20% rollover equity:
$8M in cash (what you actually receive)
$2M in rollover equity (you own 20 percentage points in the combined entity)
Why Buyers Require Rollover Equity:
Buyers use rollover equity to reduce their cash outlay and align seller incentives with the buyer's success.
They pitch it as: "You have 'skin in the game' now, so you'll work hard to grow the combined entity."
Why Rollover Equity Is Risky for Sellers:
Once you've reinvested, your money is illiquid—you can't access it easily.
Your equity is also subject to:
Dilution (if the buyer raises more capital, your ownership percentage shrinks)
Future performance risk (if the buyer's business struggles, your equity is worth less)
Governance risk (you may have no voting rights; you're just a passive investor)
Extended lockup (you may not be able to sell your rollover equity for 5+ years, or until the buyer exits)
Illustrative Scenario:
Multi-specialty medical practice group, New York, $10M sale:
Deal structure:
$8M cash at close
$2M rollover equity (20% ownership in the buyer's combined entity)
Owner's expectation: "I'll get $8M now, and my $2M equity will grow as the company scales."
What actually happened:
Year 1: Buyer raises $20M in new capital from PE firm. Your 20% equity is diluted to 10% ownership.
Year 3: Other practice acquisitions are struggling; the buyer's profitability is down 25%. Your equity, which was worth $2M on paper, is now worth ~$1M based on buyer valuations.
Year 5: Buyer is acquired by a larger platform. Equity holders (including you) get paid out, but it's $1.2M (instead of $2M expected).
Total received: $8M cash + $1.2M equity = $9.2M instead of the $10M expected.
You lost $800K on the rollover equity.
What to Watch For:
Rollover percentage: Is it reasonable? (Industry standard: 10-25% for smaller practices; higher for larger groups)
Equity structure: Are you getting preferred equity, common equity, or restricted units? (Preferred > common in liquidation)
Voting rights: Do you have any governance say, or are you a passive investor?
Liquidity events: When can you actually exit/sell your equity? Is there a lockup period? Do you have tag-along rights?
Dilution protection: Does your equity get protected if the buyer raises additional capital?
The Bottom Line:
An $8M deal structured poorly can net you far less than a $7M deal structured well.
Before you sign your LOI, make sure you understand:
✅ How much is cash at close (this is what you actually get today)
✅ How much is earnout (what are the triggers? Who controls the metrics?)
✅ How much is rollover equity (when can you access it? What's the dilution risk?)
✅ What the tax implications are (asset vs. stock affects your final net proceeds significantly)
✅ What seller involvement is required (earnouts and rollover equity often require ongoing time/effort)
Most practice owners have spent 20+ years building their business.
The last thing you want is to leave money on the table because you didn't understand the fine print.
Ready for a second set of eyes on your deal structure?
We've negotiated hundreds of these—and we know what's fair, what's not, and what clauses can cost you six figures.
Schedule a call ⤵️
Keep winning,
Viper Partners