A practical LOI framework and negotiation guide built for PT practice acquisitions — covering payer mix, therapist key-person risk, licensing transfer, and earnout structures that protect both buyers and sellers.
A letter of intent (LOI) is the foundational document in any physical therapy clinic acquisition. It signals serious buyer intent, establishes the economic and structural terms of the deal, and sets the boundaries for the due diligence period that follows. In PT practice acquisitions, the LOI must address industry-specific complexities that generic business purchase templates miss entirely: therapist licensing and credentialing continuity, payer contract assignability, patient referral source concentration, and the real possibility that clinic revenue is heavily tied to the selling clinician's personal relationships. For buyers using SBA 7(a) financing — common in this segment — the LOI must also align with lender requirements around working capital, equity injection, and seller note subordination. Whether you are a first-time owner-operator purchasing a single outpatient clinic, a regional PT chain pursuing a tuck-in acquisition, or a PE-backed platform expanding into a new market, this guide walks through every section of a well-constructed LOI and flags the negotiation pressure points most likely to surface in physical therapy deals specifically.
Find Physical Therapy Clinic Businesses to AcquireParties and Transaction Overview
Identifies the buyer entity, seller entity, and the specific assets or equity interests being acquired. In most PT clinic transactions, buyers prefer an asset purchase to avoid assuming unknown liabilities such as prior billing recoupment demands, unresolved payer audits, or HIPAA compliance violations carried within the legal entity.
Example Language
This Letter of Intent is entered into by [Buyer Entity Name] ('Buyer') and [Seller Name / Clinic Legal Entity] ('Seller') regarding Buyer's proposed acquisition of substantially all operating assets of [Clinic Name], an outpatient physical therapy practice located at [Address]. The transaction is contemplated as an asset purchase. Buyer reserves the right to designate a newly formed acquisition entity as the purchasing party prior to closing.
💡 Sellers may prefer a stock sale for tax treatment reasons, particularly if the practice is a C-corp or S-corp with significant goodwill. Buyers should clearly articulate why an asset purchase protects them from inherited healthcare compliance risk — especially billing and coding exposure — and be prepared to discuss tax gross-up provisions if the seller pushes back on deal structure. Confirm early whether the seller holds the clinic license individually or through the business entity, as this affects what transfers and what must be re-applied for.
Purchase Price and Valuation Basis
States the proposed total purchase price, the valuation methodology used to arrive at that figure, and any adjustments tied to the clinic's trailing financial performance. Physical therapy clinics in the lower middle market typically trade at 3.5x–6x EBITDA depending on payer mix quality, staff depth, referral source documentation, and growth trajectory.
Example Language
Buyer proposes a total purchase price of $[Amount], representing approximately [X.X]x trailing twelve-month EBITDA of $[Amount] as reported in Seller's financial statements for the period ending [Date]. The purchase price assumes a diversified payer mix with commercial insurance comprising no less than [X]% of gross collections, a minimum of [X] licensed physical therapists active on staff at closing, and no outstanding billing audits or payer recoupment demands. Purchase price is subject to adjustment based on findings during the due diligence period.
💡 Sellers with strong physician referral networks, low therapist turnover, and clean billing histories can reasonably argue toward the upper end of the 5x–6x EBITDA range. Buyers should anchor their initial offer at 3.5x–4.5x and tie any upward adjustment to verified referral source documentation and audited payer mix data. If the selling therapist treats more than 40% of patient visits personally, apply a key-person discount of 0.5x–1.0x EBITDA and structure an earnout to bridge the valuation gap rather than paying full price at close.
Deal Structure and Financing
Outlines how the purchase price will be funded, including buyer equity, SBA or conventional debt, seller financing, and any earnout or equity rollover components. PT clinic acquisitions at this revenue level are frequently SBA 7(a) financed, with buyers contributing 10–20% equity and sellers carrying a subordinated note for the remaining gap.
Example Language
Buyer intends to finance the proposed acquisition through a combination of: (i) SBA 7(a) loan proceeds of approximately $[Amount]; (ii) Buyer equity injection of $[Amount], representing not less than 10% of total project cost; and (iii) a Seller note of $[Amount] at [X]% interest over [X] years, fully subordinated to the SBA lender. If applicable, Buyer and Seller may agree to an earnout component of up to $[Amount] payable over [12–24] months based on [patient retention rate / gross collections / EBITDA thresholds] as defined in the definitive purchase agreement.
💡 SBA lenders require seller notes to be on full standby for the first 24 months of the loan term in most cases — sellers must understand this upfront to avoid surprises at the lender approval stage. Earnouts are particularly common in PT clinic deals where the selling therapist is a primary referral driver; structure earnout triggers around measurable, auditable metrics like monthly patient visit counts or gross collections by payer category rather than net income, which is easier to manipulate. Equity rollovers of 10–20% are increasingly common when a PE-backed platform is the buyer and the seller wants continued upside.
Exclusivity and No-Shop Period
Grants the buyer an exclusive negotiating window during which the seller agrees not to solicit, entertain, or accept competing offers. This period is typically 45–90 days for healthcare practice acquisitions given the complexity of licensing, credentialing review, and payer contract analysis required during due diligence.
Example Language
Upon execution of this Letter of Intent, Seller agrees to negotiate exclusively with Buyer for a period of [60] days ('Exclusivity Period'). During the Exclusivity Period, Seller shall not solicit, encourage, or enter into discussions with any other party regarding the sale, merger, recapitalization, or transfer of the Practice or its material assets. Buyer may request a reasonable extension of the Exclusivity Period if due diligence is ongoing and both parties are actively progressing toward a definitive agreement.
💡 Sellers negotiating with multiple interested buyers should resist signing exclusivity until the buyer has provided proof of financing capability — either an SBA lender pre-qualification letter or evidence of committed equity capital. Sixty days is a reasonable baseline for a straightforward single-location PT clinic; add 15–30 days if the clinic has multiple locations, complex payer credentialing across several insurers, or pending lease negotiations. Buyers should use this window efficiently and have their due diligence checklist distributed to the seller within the first five business days.
Due Diligence Scope and Access
Defines what information the buyer will review during the exclusivity period, including financial records, payer contracts, clinical documentation, employment agreements, and compliance history. Physical therapy due diligence goes beyond standard financial review and must include healthcare-specific elements such as billing audit history, therapist credentialing files, and referral source documentation.
Example Language
Seller shall provide Buyer with reasonable access to the following materials within [10] business days of LOI execution: (i) three years of financial statements including P&L, balance sheets, and tax returns; (ii) all active payer contracts and reimbursement rate schedules including Medicare, Medicaid, and commercial insurers; (iii) therapist license and credentialing files for all active clinical staff; (iv) billing and coding records for the trailing 24 months including any payer audit correspondence or recoupment demand letters; (v) referral source documentation including physician referral logs and marketing agreements; (vi) current lease agreement and any amendments; (vii) employee roster, compensation schedules, and non-compete agreements; and (viii) EMR system access for visit volume verification.
💡 Healthcare-specific due diligence in PT clinic acquisitions routinely surfaces billing issues that sellers are unaware of — upcoding patterns, documentation gaps supporting billed codes, or uncredentialed therapist billing. Buyers should engage a healthcare billing compliance consultant or attorney to review a sample of billing records before closing. Sellers should proactively address any known billing irregularities before going to market and disclose them in a seller disclosure schedule rather than allowing them to surface during diligence and derail the transaction.
Conditions to Closing
Lists the conditions that must be satisfied before the transaction closes. In physical therapy acquisitions, conditions typically include payer contract reassignment, therapist license verification, regulatory approvals, and landlord consent for lease assignment — all of which can create closing timeline risk if not addressed early.
Example Language
Closing of the proposed transaction shall be conditioned upon: (i) satisfactory completion of Buyer's due diligence with no material adverse findings; (ii) execution of a definitive Asset Purchase Agreement on terms consistent with this LOI; (iii) receipt of all required state physical therapy licensure and clinic operating permits in Buyer's name or designated entity; (iv) assignment or re-credentialing of key payer contracts, including but not limited to [Medicare/BCBS/Aetna/United Healthcare], acceptable to Buyer; (v) Landlord consent to assignment or execution of a new lease on terms acceptable to Buyer; (vi) execution of a Transition Services Agreement and Non-Compete Agreement by Seller; and (vii) SBA lender approval of final loan terms if applicable.
💡 Payer contract re-credentialing is the most commonly underestimated closing risk in PT acquisitions. Medicare enrollment for a new clinic owner can take 60–120 days, and some commercial payers require a full credentialing cycle rather than a simple assignment. Buyers should begin payer notification and credentialing applications as early as possible — ideally before LOI execution if the seller will allow it — and structure the closing date to accommodate the longest credentialing timeline. Include a provision allowing the seller to continue billing under existing credentials for a defined post-close period to avoid revenue disruption.
Non-Compete and Transition Agreement
Establishes the seller's obligations to refrain from competing with the clinic post-sale and to actively support the transition of patient relationships, referral sources, and clinical staff to the buyer. In PT clinics, the seller's cooperation in transitioning physician referral relationships is often as valuable as the business itself.
Example Language
As a condition of closing and in consideration of the purchase price, Seller shall execute a Non-Compete Agreement prohibiting Seller from practicing physical therapy, owning, operating, managing, or consulting for any competing outpatient physical therapy practice within a [10]-mile radius of [Clinic Address] for a period of [3] years following the closing date. Seller shall also execute a Transition Services Agreement committing to [6] months of part-time clinical and administrative transition support, including introduction of Buyer to key referring physicians, payer representatives, and clinical staff.
💡 Courts in some states scrutinize non-compete enforceability in healthcare settings, and physical therapists have successfully challenged overly broad geographic or duration restrictions. Work with a healthcare attorney to ensure the non-compete is narrowly tailored and supported by adequate consideration. The transition period is a key negotiation lever — sellers who remain engaged post-close to introduce the new owner to referring orthopedic surgeons and primary care physicians materially reduce patient attrition risk and support earnout achievement for both parties.
Confidentiality and Non-Disclosure
Confirms that both parties will maintain strict confidentiality regarding the transaction, the clinic's financial performance, patient information, and staff compensation. HIPAA compliance during due diligence adds an additional layer of confidentiality obligation beyond standard business confidentiality provisions.
Example Language
Each party agrees to maintain the confidentiality of all information exchanged in connection with the proposed transaction and to use such information solely for the purpose of evaluating the acquisition. Seller acknowledges that Buyer will require access to financial and operational records that may contain protected health information as defined under HIPAA, and both parties agree to execute a Business Associate Agreement prior to the exchange of any such records. Neither party shall disclose the existence or terms of this LOI to third parties, including employees, referral sources, or payers, without prior written consent of the other party.
💡 Staff confidentiality is a particularly sensitive issue in PT clinic acquisitions. Key therapists who learn the practice is for sale may begin job searching or be recruited by competitors. Sellers should limit internal disclosure to essential personnel and avoid announcing the sale to clinical staff until a definitive agreement is signed and a retention plan is in place. Buyers should avoid contacting clinic staff, referral sources, or payers directly during due diligence without explicit seller consent.
Binding and Non-Binding Provisions
Clarifies which provisions of the LOI are legally binding on both parties and which are expressions of intent subject to negotiation in the definitive agreement. Standard practice is for most economic and structural terms to be non-binding, with confidentiality, exclusivity, and governing law provisions carrying binding effect.
Example Language
This Letter of Intent is intended to be non-binding on the parties with respect to the proposed transaction except for the following provisions, which shall be binding: (i) Exclusivity and No-Shop (Section [X]); (ii) Confidentiality and Non-Disclosure (Section [X]); (iii) each party's obligation to bear its own costs and expenses in connection with the proposed transaction unless otherwise agreed in writing; and (iv) governing law, which shall be the laws of the State of [State]. Nothing in this LOI shall obligate either party to consummate the proposed transaction, and either party may terminate discussions at any time prior to execution of a definitive agreement.
💡 Sellers should be cautious about LOIs that attempt to make price, structure, or earnout terms binding before due diligence is complete. Buyers legitimately need flexibility to adjust terms based on diligence findings. However, sellers should ensure that if a buyer terminates after a substantial due diligence period without a material adverse finding, there is at minimum a cost reimbursement provision covering seller-side legal and advisory fees incurred during exclusivity.
Payer Mix Representation and Price Adjustment Trigger
Negotiate a specific minimum commercial insurance percentage as a representation in the LOI, with a defined purchase price adjustment mechanism if payer mix at closing materially differs from what was represented. A clinic where Medicare or Medicaid exceeds 40% of collections carries meaningfully higher reimbursement risk and should be priced accordingly, not adjusted informally after the definitive agreement is signed.
Key-Person Earnout Metrics and Measurement Period
If the selling therapist treats a material portion of patient visits, structure an earnout that ties deferred consideration to verifiable patient retention and gross collections over 12–24 months post-close. Define the measurement metric precisely — monthly visit counts by treating therapist, gross collections by payer, or total revenue versus a trailing benchmark — and specify a neutral third-party audit right if either party disputes the earnout calculation.
Therapist Retention and Hiring Obligations
Define the minimum number of licensed physical therapists who must remain employed at closing and for a defined post-close period, and negotiate a purchase price reduction or escrow holdback if key clinical staff depart before the retention threshold date. Losing a senior therapist who manages a specialty program or key referral relationship between LOI signing and close is a material business risk that the LOI should address explicitly.
Billing Compliance Escrow and Indemnification Cap
Negotiate an escrow holdback of 5–10% of purchase price for 12–24 months to cover potential payer recoupment demands, billing audit findings, or HIPAA violation penalties that surface post-close but relate to pre-close billing periods. Define the indemnification cap and survival period for billing compliance representations clearly — healthcare billing liability does not disappear at closing and can surface years later in government payer audits.
Lease Assignment Terms and Landlord Consent Deadline
Specify a deadline by which landlord consent to lease assignment must be obtained, and negotiate a walk-away right for the buyer if the landlord refuses assignment or proposes materially different lease terms. Physical therapy clinics are location-dependent businesses — if the current location cannot be secured post-close, the value of the referral network and patient base is at risk. Buyers should also negotiate a lease term extension option as part of the assignment process.
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Most PT clinic LOIs provide 45–75 days of exclusivity. The standard 60-day window accounts for the time needed to complete healthcare-specific due diligence including payer contract review, billing compliance audit, therapist credentialing verification, and lease assignment negotiation. Buyers pursuing SBA financing should add 15 days to their exclusivity request to accommodate lender underwriting timelines. If Medicare re-enrollment is required, both parties should acknowledge upfront that the closing itself may extend well beyond the exclusivity period regardless of when diligence is complete.
The most practical approach is to establish a baseline valuation assuming the clinic can sustain current visit volume with the buyer or replacement therapist in the treating role, apply a key-person discount to the upfront payment, and structure a 12–24 month earnout tied to gross collections or patient visit counts. The LOI should specify the earnout calculation methodology, measurement dates, and audit rights. Sellers should push for earnout metrics they can actively influence — monthly collections against a trailing benchmark is more seller-friendly than a net income target, which the buyer controls more directly through post-close expense decisions.
It depends on the payer. Medicare does not assign — a new clinic owner must complete Medicare enrollment as a new provider, which typically takes 60–120 days through PECOS. Most commercial payers such as BCBS, Aetna, and United Healthcare have assignment or novation processes, but they often require credentialing review and formal approval rather than a simple notification. Some smaller regional insurers may allow assignment with minimal friction. The LOI should include a condition requiring payer contract continuity acceptable to the buyer, and both parties should begin payer notification discussions as early in the process as the seller is comfortable with, to avoid post-close revenue disruption.
The LOI itself is typically non-binding on the core transaction terms — price, structure, and earnout — but specific provisions including exclusivity, confidentiality, and governing law are written as binding obligations. The binding nature of the LOI's confidentiality section is particularly important in PT acquisitions given HIPAA obligations when sharing financial records that may contain patient visit data or billing information. Both parties should have their respective healthcare M&A attorneys review the LOI before execution to confirm that the binding and non-binding designations are clearly delineated and that the confidentiality provision includes adequate HIPAA compliance language.
The most commonly used earnout structures in PT clinic deals tie deferred payments to gross collections, patient visit volume, or retained revenue thresholds measured over 12–24 months post-close. Gross collections earnouts are favored because they are objective, auditable from billing records, and not subject to buyer manipulation through expense allocation. A typical structure might pay an additional $150,000–$300,000 if the clinic maintains 90% or more of trailing twelve-month collections in each of the two post-close years. Earnouts tied to net income or EBITDA are more contentious and should be avoided unless the buyer agrees to detailed cost allocation guardrails in the purchase agreement.
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