What is an LOI in healthcare M&A?
A letter of intent (LOI) in healthcare M&A is a mostly non-binding agreement that sets the proposed purchase price, structure, exclusivity period, and diligence timeline before a buyer commits the resources to close a deal. The exclusivity and confidentiality clauses are the parts that usually bind.
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Definition
An LOI (letter of intent) is a pre-contract term sheet that outlines the major commercial terms of a proposed acquisition, including price, structure, exclusivity, and timing, signed before definitive agreements are drafted.
The detail
LOIs in healthcare practice transactions typically cover eight things. Purchase price, usually built from a multiple of adjusted EBITDA, with a working capital peg. Structure, including cash at close, rollover equity percentage, and any earnout or seller note. Exclusivity (no-shop), a fixed window during which the seller cannot negotiate with other buyers; FOCUS Investment Banking, which runs sell-side processes for physician and dental groups, says the exclusive run to closing is usually set at 90 days. Diligence access, including financial, legal, clinical, and operational. Timeline to closing. Treatment of real estate (purchase, master lease, related-party lease). Treatment of employment agreements, especially for the selling physicians and the staff the buyer wants to keep. Conditions to closing, including regulatory approvals and any required consents. Most terms are non-binding, but exclusivity and confidentiality provisions are binding. The biggest seller mistake is treating the LOI as a formality and negotiating hard terms only at the definitive agreement stage. By then the buyer has spent money on diligence and is in a stronger position to chip price.
Once the LOI is signed, neither party is obliged to close, but both agree to work exclusively toward closing along a set timeline, usually 90 days.
Source: FOCUS Investment Banking: Breaking Down the FOCUS Sell-Side Process (Jul 2025)
What this means for clinic owners
From Sorso
Do not sign exclusivity until you have pressure-tested the headline number against at least one other buyer. Once you are in a no-shop, the buyer knows you cannot walk quickly, and any retrade is harder to refuse. The LOI is where leverage lives.
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How do PE firms value medical practices?
Private equity firms value a medical practice as a multiple of its trailing-twelve-month adjusted EBITDA, and the multiple rises with scale. Published ladders run from 2.5–4x for a single owner-operated physical therapy clinic (Breakwater M&A) to 10x–20x for large primary care platforms (Scope Research), and payer mix, growth and owner dependence move a practice within its band.
What is a quality of earnings report?
A quality of earnings (QoE) report is a financial due diligence analysis, usually commissioned by the buyer, that normalizes EBITDA, tests whether revenue and expenses are reliable, and flags risks that affect the purchase price. Breakwater M&A puts the fee at $10,000 to $25,000 for a business with under $1M of EBITDA, rising to $50,000 to $150,000 at $10M to $25M.
What is rollover equity in a practice sale?
Rollover equity is the portion of sale proceeds that the selling owner retains as equity in the buyer's platform, generally 10 to 40 percent of the practice's total enterprise value in physician deals according to Foley & Lardner, creating a second liquidity event when the platform is later sold.
What is a working capital peg in an M&A deal?
A working capital peg is the target level of net working capital the buyer expects at close; delivery above or below the peg results in a dollar-for-dollar purchase price adjustment, which can move the headline price at close in either direction.
How long does it take to sell a medical practice?
Selling a medical practice to a PE buyer usually takes about six to nine months from hiring an advisor to closing. FOCUS Investment Banking says its healthcare sell-side process typically takes 6 months, and broker Raincatcher puts a clinic or small-group sale at six to nine months: preparation and valuation in months one to two, marketing and offers in months two to five, and diligence, licensing and closing in months five to nine.
What is an earnout in a healthcare M&A deal?
An earnout is a portion of the purchase price paid only if the practice hits financial targets after closing, usually revenue, collections or EBITDA measured over one to three years. In dental DSO deals, Jaffe Law puts earnouts at 10% to 30% of deal value, and SRS Acquiom's deal data put the achievement rate for earnouts outside life sciences at 21 cents on the dollar.
What is a data room in healthcare M&A?
A data room is the secure online repository where a seller uploads financial, legal, clinical, and operational documents for buyer diligence, organized in folders that follow the buyer's diligence request list.
What is an IOI in healthcare M&A?
An indication of interest (IOI) is a non-binding preliminary bid, usually providing a price range rather than a specific number, submitted after a buyer reviews the confidential information memorandum but before full diligence or LOI.
What is reps and warranties insurance in M&A?
Reps and warranties insurance (RWI) is a buyer-side policy that covers financial losses from breaches of seller representations in the purchase agreement. Marsh puts average premiums for US and Canadian deals at 3.0% to 3.7% of the policy limit in early 2026.
What is a non-compete in a healthcare practice sale?
A non-compete in a healthcare practice sale restricts the selling physician from opening or joining a competing practice within a defined radius and time period after closing. Courts enforce sale-based covenants more readily than employment ones; for dental practice sales, Jaffe Law says they often run 15 to 20 miles and 3 to 5 years, and state law decides what holds.
What is pro forma EBITDA in a practice valuation?
Pro forma EBITDA adjusts historical earnings for known future changes like new providers hired mid-year, fee schedule increases in effect, or a recently-opened location running below capacity, typically reflecting a full year of annualized performance.
Founder of Sorso and a CFA charterholder. Before Sorso, Stan spent 19 years in corporate finance at institutions including UniCredit and Société Générale — managing a $450M loan portfolio and making senior partner at a major mezzanine lender by 29 — then built a fractional CFO firm exclusively for outpatient healthcare clinics.
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