Letter of Intent Template for Acquiring a Dermatology Practice

Parties and Transaction Overview

Identifies the buyer entity, the seller (typically the physician owner or professional corporation), and the target practice entity. In dermatology, this section must acknowledge whether the transaction will proceed as an asset purchase through an MSO structure, a stock purchase of the professional corporation, or a hybrid arrangement. Clarify early whether a management services organization will be formed or already exists on the buyer side.

💡 Sellers should confirm the buyer has healthcare legal counsel familiar with CPOM law in their state before signing. Buyers operating roll-up platforms should insert the specific MSO entity name rather than a placeholder — it signals operational readiness. If the buyer is an individual physician using SBA financing, note that SBA 7(a) loans cannot flow through an MSO for the clinical entity; structure must be carefully reviewed with an SBA-approved lender and healthcare attorney before the LOI is finalized.

Purchase Price and Valuation Basis

States the proposed total enterprise value, the basis on which it was calculated (typically a multiple of trailing twelve-month or last full-year EBITDA), and how the purchase price is allocated between tangible assets, goodwill, and any cosmetic revenue premium. Dermatology practices in the lower middle market typically trade at 4x–7x EBITDA, with premium multiples awarded for strong cosmetic revenue, multiple licensed providers, and diversified payer mix.

💡 Sellers with meaningful cosmetic revenue (greater than 25% of total collections) should push for the LOI to explicitly acknowledge the cash-pay aesthetic book as a premium line item — buyers sometimes undervalue it by blending it into a single EBITDA multiple. Buyers should clarify whether the stated EBITDA has been adjusted for physician compensation above or below market, personal expenses run through the practice, or one-time items such as PPP loan forgiveness. Request a quality of earnings scope disclosure before finalizing the purchase price in the LOI.

Deal Structure and Payment Terms

Describes how the purchase price will be funded, including equity, debt (SBA or conventional), seller note, and any earnout component tied to post-close performance. In dermatology, earnouts are common when a significant portion of revenue is tied to the selling physician's patient relationships or cosmetic client base, particularly in solo practices.

💡 Sellers should negotiate a floor on the earnout with clearly defined, objectively measurable metrics — avoid vague language such as 'practice performance.' Insist that earnout calculations exclude buyer-imposed overhead allocations from the MSO management fee that were not present pre-close. Buyers using SBA 7(a) financing should confirm with their lender that the seller note structure complies with SBA standby debt requirements, as SBA loans typically require the seller note to be on full standby for the life of the SBA loan.

Exclusivity and No-Shop Period

Grants the buyer an exclusive negotiating window during which the seller agrees not to solicit or entertain competing offers. This section is critical in dermatology acquisitions where roll-up platforms may be competing for the same target simultaneously.

💡 Sixty days is standard for dermatology acquisitions, but sellers should resist exclusivity periods exceeding 90 days without a clear milestone schedule from the buyer. Buyers should pair the exclusivity grant with a break-up fee provision (typically 1%–2% of purchase price) payable to the seller if the buyer terminates without cause, as a good-faith signal. Roll-up platforms with established due diligence processes should push for 45-day exclusivity to reduce seller anxiety and accelerate momentum.

Due Diligence Conditions and Access

Outlines the scope of buyer's due diligence investigation and seller's obligations to provide access to financial records, payer contracts, employment agreements, malpractice history, and compliance documentation. Dermatology-specific due diligence is particularly involved given HIPAA requirements, state licensing complexity, and the dual revenue model.

💡 Sellers should pre-organize a data room before LOI execution to reduce the due diligence period and maintain deal momentum. Buyers must pay particular attention to payer contract assignability — many commercial payer contracts require notice or consent for assignment, which can delay closing by 60–90 days if not addressed early. HIPAA-compliant data room platforms are non-negotiable; never transmit patient records or PHI via standard email during the due diligence process.

Physician Transition and Employment Terms

Addresses the selling physician's post-close role, compensation structure, duration of the transition employment agreement, and scope of any non-compete covenant. This is often the most heavily negotiated section in a dermatology LOI because physician retention directly affects patient continuity, payer contract standing, and earnout achievement.

💡 Non-compete enforceability varies significantly by state — California, Minnesota, and North Dakota severely restrict or prohibit physician non-competes, while states like Texas and Florida allow them with reasonable scope. Buyers must confirm enforceability before relying on the non-compete as a deal protection mechanism. Sellers should negotiate the non-compete radius carefully relative to actual patient draw area — a 10-mile radius in a dense urban market is very different from a 10-mile radius in a rural setting. Both parties should resist vague transition language; specificity about FTE commitment, patient handoff protocols, and new provider hiring timelines will prevent post-close disputes.

Representations and Warranties Framework

Sets expectations for the representations and warranties that will be included in the definitive purchase agreement. While the LOI does not bind the parties to specific reps and warranties, outlining key areas signals buyer expectations and allows the seller to flag potential disclosure issues early.

💡 Sellers should expect buyers to push for extended survival periods on healthcare compliance and tax representations — 3–5 years is common versus the 12–18 month standard for general business reps. Buyers should consider Representations and Warranties (R&W) insurance for transactions above $3M enterprise value as an alternative to excessive escrow holdbacks, particularly where the selling physician is retiring and may have limited post-close financial capacity to fund indemnification claims. Always include a specific rep on Medicare and Medicaid billing compliance given OIG and CMS audit exposure.

Conditions to Closing

Lists the material conditions that must be satisfied before either party is obligated to close the transaction. In dermatology acquisitions, closing conditions frequently include third-party regulatory approvals, payer contract assignments, and lease landlord consents that are outside the parties' direct control.

💡 Payer contract assignment is frequently the longest-lead-time item in a dermatology closing — buyers should initiate payer notifications within the first two weeks of due diligence, not at the end. Sellers should push back on open-ended 'material adverse change' clauses; insist on defining 'material' as a quantitative threshold (e.g., greater than 15% decline in monthly collections). Tail malpractice coverage can be expensive — determine in the LOI which party bears this cost, as it can range from $20,000 to $100,000+ depending on claims history and coverage limits.