A practical LOI framework built for the unique legal, regulatory, and financial complexities of cosmetic surgery practice acquisitions — covering CPOM compliance, physician earnouts, malpractice tail obligations, and SBA deal structuring.
An LOI for a cosmetic surgery center is more nuanced than a standard business acquisition letter. The intersection of healthcare regulation, physician licensing, corporate practice of medicine (CPOM) laws, and elective procedure revenue cycles requires carefully crafted terms that protect both buyer and seller. At the lower middle market level ($1M–$5M revenue), most cosmetic surgery center acquisitions involve an asset purchase or a dual-entity structure separating the Management Services Organization (MSO) from the Professional Corporation (PC). Key LOI provisions must address the selling surgeon's transition period and non-compete scope, how patient revenue will be attributed during an earnout period, who bears malpractice tail insurance costs, and how the deal is financed — often via SBA 7(a) loan with a seller note. This guide walks you through each critical LOI section with example language and negotiation guidance specific to cosmetic surgery center transactions.
Find Cosmetic Surgery Center Businesses to AcquireParties and Transaction Structure
Identifies the buyer entity, seller entity (typically both the PC and the MSO or management company), and defines whether the transaction is structured as an asset purchase, stock purchase, or a bifurcated MSO/PC acquisition. In cosmetic surgery deals, the structure must account for state CPOM laws that prohibit non-physicians from owning a medical professional corporation.
Example Language
Buyer: [Acquirer Name], a [state] limited liability company, proposes to acquire substantially all of the assets of [Practice Name MSO, LLC] (the 'Management Company') and to facilitate the transfer of the clinical operations of [Practice Name, MD PC] (the 'Professional Corporation') to a physician designee or newly formed PC, structured in compliance with [State] corporate practice of medicine statutes. The transaction is intended to close as an asset purchase of the Management Company with a concurrent MSO agreement between Buyer and the successor PC.
💡 Buyers should confirm the state's CPOM posture before selecting a structure. In states with strict CPOM (e.g., California, Texas), the buyer cannot own the PC and must rely on a robust MSO agreement for economic control. Sellers should ensure the proposed structure does not expose them to fee-splitting liability post-close. Clarify upfront whether both the MSO assets and PC goodwill are included in the purchase price.
Purchase Price and Valuation
States the proposed total enterprise value and how it was derived, typically as a multiple of trailing twelve-month (TTM) or adjusted EBITDA. Cosmetic surgery centers in the lower middle market typically trade at 3.5x–6x EBITDA depending on key-man risk, procedure mix, and accreditation status.
Example Language
Buyer proposes a total purchase price of $[X,XXX,000], representing approximately [4.5x] the Practice's trailing twelve-month adjusted EBITDA of $[XXX,000] as reflected in the CPA-reviewed financial statements for the period ending [Date]. The purchase price is subject to adjustment based on findings during the due diligence period, including any undisclosed malpractice liabilities, equipment condition assessments, and confirmation of patient revenue sustainability independent of the selling physician.
💡 Sellers should push back on aggressive EBITDA adjustments that strip out legitimate physician compensation or reclassify business expenses. Buyers should normalize owner compensation to market-rate surgeon salary (typically $350K–$500K) before applying a multiple. If the practice has significant non-surgical recurring revenue (Botox, fillers, laser), this should command a premium multiple as it reduces key-man risk and supports post-close cash flow predictability.
Deal Financing Structure
Outlines the proposed funding sources for the acquisition, typically including an SBA 7(a) loan, seller note, and buyer equity injection. SBA financing is common for cosmetic surgery acquisitions under $5M in enterprise value, subject to the buyer meeting SBA eligibility and the practice meeting lender requirements.
Example Language
Buyer intends to finance the acquisition as follows: (i) approximately 70–80% via SBA 7(a) loan through [Lender Name or TBD], (ii) a seller note of approximately 10–15% of the purchase price, subordinated to the SBA loan, bearing interest at [6–7]% per annum with a 5-year maturity and 24-month deferral period, and (iii) buyer equity injection of no less than 10% of total project costs. The seller note shall be contingent upon Seller's completion of the agreed transition period and compliance with the non-solicitation provisions herein.
💡 SBA lenders will require the selling physician to remain on a consulting or employment agreement for 12–24 months post-close and may require the seller note to be placed on full standby for 24 months. Sellers should negotiate the interest rate and any acceleration triggers on the note carefully. Buyers should confirm SBA eligibility early — practices with significant cash revenue or unusual ownership structures can complicate loan approval.
Earnout Provisions
Defines performance-based consideration paid to the seller after closing, typically tied to revenue retention or EBITDA achievement over 12–36 months. Earnouts are common in cosmetic surgery acquisitions where buyer and seller disagree on how much revenue will persist after the selling physician reduces involvement.
Example Language
In addition to the base purchase price, Seller shall be eligible to receive earnout payments totaling up to $[XXX,000] over a [24]-month period post-closing, calculated as follows: (i) if annual Practice revenue equals or exceeds [90]% of the TTM baseline of $[X,XXX,000], Seller receives [50]% of the earnout; (ii) if annual revenue equals or exceeds [100]% of baseline, Seller receives [100]% of the earnout. Earnout payments shall be made quarterly within 45 days of each quarter-end, accompanied by an unaudited revenue report prepared by Buyer. Revenue attributable to procedures personally performed by Seller under the Transition Services Agreement shall be included in the earnout calculation.
💡 Sellers should insist on clearly defined revenue calculation methodology, including whether non-surgical injector revenue and surgical cases referred by the seller count toward the earnout. Buyers must ensure the earnout metric is controllable — tying it to net revenue (after refunds and chargebacks) rather than gross collections reduces manipulation risk. Both parties should agree in writing on what marketing spend or service additions Buyer can make during the earnout period that might inflate or deflate baseline comparisons.
Physician Transition and Employment Terms
Specifies the selling physician's role post-closing, including whether they will remain as an employed surgeon, independent contractor, or clinical consultant, and for how long. This is one of the most negotiated provisions in cosmetic surgery center LOIs given its direct impact on patient retention and earnout outcomes.
Example Language
As a condition of closing, Seller shall enter into a Transition Services Agreement ('TSA') for a period of [24] months post-closing, during which Seller shall (i) continue performing surgical and non-surgical procedures at a minimum of [3] clinical days per week, (ii) actively introduce and transfer patient relationships to successor physicians and mid-level providers, and (iii) participate in no fewer than [2] staff and patient communication events per year to support continuity of care. Compensation during the transition period shall be set at $[XXX,000] annually, plus [X]% of collections from procedures personally performed by Seller above $[XXX,000] per year.
💡 Buyers should tie a portion of the seller's post-close compensation to patient retention metrics to align incentives. Sellers should negotiate for a defined wind-down schedule that allows them to reduce clinical days over the transition period rather than maintaining full-time hours for the entire term. Both parties should agree upfront on what constitutes a 'good faith' effort at patient introduction to avoid earnout disputes later.
Non-Compete and Non-Solicitation
Defines the geographic scope, duration, and restricted activities of the seller's non-compete covenant. In cosmetic surgery, this is particularly sensitive given that a surgeon's personal reputation and patient relationships are the primary source of practice value.
Example Language
Seller agrees that for a period of [3] years following the Closing Date, Seller shall not, directly or indirectly, (i) own, operate, manage, or provide clinical services to any cosmetic surgery center, med spa, or aesthetic medicine practice within a [15]-mile radius of the Practice's primary location(s); (ii) solicit or accept referrals from any patient who received services at the Practice within the [24] months prior to Closing; or (iii) hire or solicit any employee or independent contractor of the Practice. This covenant shall be subject to applicable state law and shall be severable to the extent any provision is deemed unenforceable.
💡 Non-competes in physician transactions are heavily scrutinized under state law — some states (e.g., California) effectively prohibit them, while others enforce them with strict reasonableness standards. Buyers should consult healthcare counsel before relying on a non-compete as a primary patient retention mechanism. Sellers should negotiate carve-outs for academic appointments, teaching roles, and out-of-market practice opportunities. SBA lenders will require a non-compete from any seller owning 20% or more of the business.
Due Diligence Period and Access
Establishes the timeframe, scope, and conditions under which the buyer will conduct due diligence, including access to financial records, patient volume data, malpractice history, licensing files, and facility accreditation documents.
Example Language
Buyer shall have [60] calendar days from the execution of this LOI (the 'Due Diligence Period') to complete its review of the Practice. Seller shall provide Buyer with access to: (i) 3 years of CPA-reviewed or audited financial statements and tax returns; (ii) anonymized patient volume and procedure mix reports by year; (iii) all malpractice claims, settlements, board complaints, and tail insurance documentation for the prior [7] years; (iv) current and pending licensing, DEA registrations, AAAHC or JCAHO accreditation status, and Medicare/Medicaid enrollment records; (v) all physician, staff, and vendor contracts; and (vi) equipment inventory with age, maintenance records, and estimated replacement costs. All materials shall be provided through a secure virtual data room and governed by the Mutual NDA executed by the parties on [Date].
💡 Sellers must provide patient data in anonymized or de-identified format to comply with HIPAA during the pre-close diligence phase. Full patient record access typically requires a HIPAA-compliant Business Associate Agreement executed prior to any record review. Buyers should not accept incomplete malpractice history — insist on a sworn disclosure from the seller and contact the National Practitioner Data Bank (NPDB) directly. Sixty days is a reasonable diligence period for cosmetic surgery centers; shorter timelines increase post-close surprise risk.
Malpractice and Tail Insurance
Allocates responsibility for obtaining and funding tail insurance (extended reporting period coverage) for claims arising from procedures performed prior to the closing date, which is one of the most significant contingent liability items in cosmetic surgery acquisitions.
Example Language
Seller shall be responsible for obtaining and funding a claims-made tail insurance policy covering all procedures performed at the Practice prior to the Closing Date, with a retroactive date no later than [date of first policy coverage]. The tail policy shall provide minimum coverage of $[1,000,000] per occurrence and $[3,000,000] in the aggregate and shall name Buyer as an additional insured. Evidence of tail coverage shall be a condition to Buyer's obligation to close. If Seller's current malpractice carrier is unwilling to issue tail coverage on commercially reasonable terms, the parties shall cooperate in identifying an alternative carrier, with any excess cost above $[XX,000] to be shared equally.
💡 Tail insurance can cost 150–200% of the annual malpractice premium and is a significant transaction cost sellers often underestimate. Buyers should not accept responsibility for tail coverage on pre-close procedures — this is firmly a seller obligation. Sellers should budget for tail costs well in advance of going to market. In deals where the seller is remaining as an employee post-close, confirm whether the buyer's new occurrence-based policy or the seller's tail policy governs — overlapping coverage periods create ambiguity that must be resolved in the purchase agreement.
Exclusivity and No-Shop
Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit or entertain competing offers, allowing the buyer to invest in due diligence and financing without the risk of being outbid mid-process.
Example Language
From the date of execution of this LOI through the earlier of (i) [90] calendar days or (ii) termination of this LOI by either party, Seller shall not, and shall cause its agents, brokers, attorneys, and advisors not to, directly or indirectly solicit, encourage, negotiate, or accept any offer from any third party relating to the sale, merger, recapitalization, or other disposition of the Practice or its assets. Seller shall promptly notify Buyer of any unsolicited approach received during the exclusivity period.
💡 Ninety days is a reasonable exclusivity window for cosmetic surgery acquisitions involving SBA financing, which typically requires 60–75 days for lender processing alone. Sellers should push for a shorter exclusivity period (45–60 days) if the buyer does not yet have a financing commitment letter, to avoid being locked out of the market unnecessarily. Buyers with an SBA pre-qualification or committed equity capital may be able to negotiate longer exclusivity in exchange for a higher earnest money deposit.
Conditions to Closing
Lists the material conditions that must be satisfied before the transaction closes, including regulatory approvals, licensing transfers, financing commitments, key employee retention agreements, and absence of material adverse changes to the practice.
Example Language
The obligation of Buyer to consummate the transaction shall be conditioned upon, among other things: (i) completion of satisfactory due diligence in Buyer's reasonable discretion; (ii) receipt of SBA loan commitment and satisfaction of all lender conditions; (iii) execution of a Transition Services Agreement with Seller and employment or independent contractor agreements with the Practice's [lead injector RN] and [aesthetician team]; (iv) confirmation that all state and DEA licenses, AAAHC accreditation, and facility certifications are current and transferable or replaceable without material delay; (v) no material adverse change in patient volume, revenue, or accreditation status between LOI execution and Closing; and (vi) receipt of evidence of tail insurance coverage as described herein.
💡 Sellers should negotiate for a 'hell or high water' financing condition — if the buyer's SBA loan falls through, the seller should have the right to terminate and retain any earnest money deposit. Buyers should include a material adverse change (MAC) clause that specifically covers loss of key staff (particularly lead injectors), accreditation suspension, or the discovery of undisclosed malpractice claims. Key employee retention agreements should be signed and effective at or before closing, not as a post-close deliverable.
Earnout Revenue Attribution During Physician Transition
When the selling physician continues performing procedures post-close, both parties must agree in writing on whether revenue from those procedures counts toward the seller's earnout baseline and how it is tracked. If the selling surgeon drives 70%+ of surgical revenue, buyers may argue that earnout metrics should exclude procedures the seller personally performs — since the point of the earnout is to measure whether revenue persists without them. Sellers will argue the opposite. This single ambiguity causes more earnout disputes in cosmetic surgery deals than any other term.
Malpractice Tail Insurance Cost Allocation
Tail coverage for a high-volume cosmetic surgery practice can cost $50,000–$150,000 or more depending on the surgeon's specialty, claim history, and carrier. Sellers must understand this is their responsibility and plan accordingly in their net proceeds calculation. Buyers should verify the tail policy is bound before releasing any funds at closing. In distressed or negotiated transactions, buyers sometimes agree to split the tail cost in exchange for a lower purchase price — this is acceptable only if the seller's prior claim history is clean.
Non-Compete Geographic Scope and State Law Enforceability
A non-compete is the buyer's primary protection against the selling surgeon opening a competing practice nearby. However, enforceability varies dramatically by state — California prohibits them almost entirely, while states like Florida and Texas have clear enforcement statutes. Buyers in CPOM-restricted states where the surgeon must retain nominal PC ownership post-close must be especially careful, as courts may void non-competes that effectively prevent the physician from practicing medicine. Legal counsel should confirm the enforceable scope before the LOI is signed.
Seller Note Standby and Acceleration Provisions
SBA lenders require seller notes to be placed on full standby — meaning no principal or interest payments — for typically 24 months post-close. Sellers should negotiate the interest rate (target 6–8% per annum) and ensure the note is not subject to arbitrary acceleration by the buyer. Buyers should negotiate for acceleration triggers tied to material breaches of the non-compete or earnout manipulation, rather than allowing the seller to demand early repayment. The seller note structure should be documented in a separate promissory note and security agreement, not just referenced in the asset purchase agreement.
MSO Agreement Economic Terms and PC Control Provisions
In states with CPOM restrictions, the buyer's economic interest in the practice flows through an MSO agreement between the buyer's management company and the physician-owned PC. The LOI should outline the management fee structure (typically 40–60% of PC gross revenue), the term and termination rights of the MSO agreement, and which party controls key operational decisions such as hiring, pricing, and marketing. A poorly drafted MSO agreement post-close can expose the buyer to CPOM violation claims or leave the PC physician with more operational control than the buyer intended. Both parties should retain healthcare-specialized legal counsel to draft this document.
Staff Retention as a Closing Condition vs. Post-Close Obligation
In cosmetic surgery centers, the revenue-generating capability of non-physician injectors (RNs, NPs, PAs) and aestheticians is often comparable to or greater than the surgeon's contribution to non-surgical revenue. Buyers should insist that signed employment agreements with key clinical staff be a condition to closing — not a post-close best effort. Sellers may resist this because staff members may not want to commit to a new employer before the deal is announced. A reasonable compromise is for the buyer to meet directly with key staff before LOI execution under NDA to assess retention risk before agreeing to a closing condition.
Find Cosmetic Surgery Center Businesses to Acquire
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Yes — and it should be one of the first things addressed. CPOM laws in many states prohibit non-physicians from owning or controlling a medical professional corporation. In cosmetic surgery acquisitions, this typically means the buyer cannot directly acquire the PC that employs the physician; instead, the buyer acquires the management services organization (MSO) and enters into a management services agreement that gives the buyer economic control of the practice's revenues. The LOI should specify which entity is being acquired, whether an MSO structure is contemplated, and which state's CPOM framework governs the transaction. Failing to address this in the LOI will cause structural confusion and legal fees later in the process.
For SBA-financed cosmetic surgery acquisitions, 75–90 days is typically necessary to allow time for SBA lender processing (which alone can take 45–60 days), due diligence on malpractice history and licensing, and negotiation of the purchase agreement and MSO structure. If the buyer already has an SBA pre-qualification or committed equity capital, a shorter 60-day window may be sufficient. Sellers should resist granting exclusivity longer than 90 days without a meaningful earnest money deposit — being locked out of the market while a buyer's financing falls through is a real risk, particularly if the seller has already invested in deal preparation.
Malpractice tail insurance — the extended reporting period policy that covers claims arising from procedures performed before the closing date — is almost universally the seller's responsibility in cosmetic surgery acquisitions. Tail premiums for a high-volume cosmetic surgeon can range from $50,000 to over $150,000 depending on specialty, claim history, and years of coverage needed. Sellers should budget for this cost when calculating net proceeds from the sale. The LOI should explicitly assign this obligation to the seller and make delivery of a bound tail policy a condition to the buyer's obligation to close. Some buyers agree to cost-share on tail in exchange for a price reduction — this is acceptable only where the seller's claim history is entirely clean.
Yes, in most states a non-physician buyer can acquire the business assets of a cosmetic surgery center using SBA 7(a) financing, provided the deal is structured through an MSO that does not violate CPOM laws. The SBA lender will require the buyer to demonstrate that the practice can continue generating revenue post-close, which typically means the selling physician or a successor physician must remain clinically active under a transition services agreement. The SBA will also require the seller to provide a subordinated seller note and sign a non-compete. Non-physician buyers should work with healthcare-specialized legal counsel and an SBA lender experienced in medical practice acquisitions to ensure the deal structure is both CPOM-compliant and SBA-eligible.
Patient records and protected health information (PHI) are subject to HIPAA and cannot be shared with a buyer without patient authorization or a proper legal framework. During the pre-LOI and due diligence phases, sellers should provide anonymized or de-identified patient volume reports — showing procedure types, visit frequency, and revenue per patient cohort — without including any individually identifiable information. If a buyer needs access to actual patient records (which is rarely necessary before a signed purchase agreement), a HIPAA-compliant Business Associate Agreement must be in place. Most cosmetic surgery center LOIs and NDAs include a HIPAA confidentiality provision; confirm this is present before sharing any data.
Lower middle market cosmetic surgery centers typically trade at 3.5x–6x adjusted EBITDA, with the final multiple driven by factors including key-man risk, procedure mix diversification, accreditation status, malpractice history, and recurring non-surgical revenue. A center where 80% of revenue is personally generated by the selling surgeon — with no associate providers and no non-surgical repeat business — will trade at the low end (3.5x–4x) or require a substantial earnout. A practice with two associate physicians, a strong non-surgical injector program, AAAHC accreditation, and three years of 10%+ revenue growth can command 5x–6x or higher on a platform acquisition. Buyers should normalize physician compensation to market rate (typically $350K–$500K/year for a board-certified cosmetic surgeon) before applying a multiple.
In deals where the selling physician is staying on post-close for 2–3 years and there is a PE or strategic acquirer involved, a seller equity rollover of 10–20% of deal value is common and can be a valuable alignment mechanism. The LOI should specify the rollover percentage, the entity in which the rollover equity is held (typically the buyer's operating company or platform holdco), and whether there are vesting or earnout conditions attached to the rollover shares. For SBA-financed deals, equity rollover is less common because SBA rules limit the seller's ongoing financial interest in the business. Sellers considering a rollover should understand the liquidity timeline — rollover equity in a PE-backed platform may not be monetized for 3–7 years.
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