An addiction treatment center letter of intent can look reassuring: a price, a target closing date and a buyer ready to move forward. The seller’s real decision is more specific. Are the economics clear enough, and the buyer sufficiently prepared, to justify limiting other discussions while the deal is developed? Before signing, resolve the assumptions that could change your proceeds, your obligations or the likelihood of closing. This guide focuses on that decision, rather than repeating a general acquisition due diligence checklist.
A useful LOI establishes the proposed deal’s commercial framework and the rules for getting to a definitive agreement. It should identify the parties, transaction perimeter, price mechanics, important conditions and negotiation process. It also exposes disagreements while both parties can still address them without the expense and disruption of a prolonged exclusive process.
Do not treat the label “nonbinding” as a complete legal answer. In ev3, Inc. v. Lesh, the Delaware Supreme Court distinguished binding LOI provisions from nonbinding deal terms. That decision illustrates why the actual wording matters; it is not a nationwide rule for every LOI. Your attorney should identify enforceable provisions, any negotiation obligations and the effect of the chosen governing law.
The business test is straightforward: can you describe what you are selling, what you might receive, what must happen before closing and how long you are committing to this buyer? If those answers depend on assumptions the buyer has not accepted, the LOI needs more work. The sister-site guide to selling an addiction treatment center covers the wider transaction process.
Start by asking whether the quoted price is enterprise value, equity value or a different measure. Enterprise value typically describes the operating business before the agreed treatment of debt, cash and other adjustments. The seller receives the amount produced by the actual agreement’s calculation. Request a preliminary bridge from the headline offer to estimated cash at closing, with every deduction and deferred component shown.
For illustration only, consider a $10 million headline offer containing $2 million of rollover equity and a $1 million maximum earnout. That leaves $7 million before debt repayment, expenses, escrow, working-capital adjustments and taxes. It does not produce $10 million of cash at closing. This example describes payment mechanics, not an addiction-treatment valuation or a recommended structure.
Ask the buyer to model a base case and downside case using your actual balance sheet. Keep restricted or contingent amounts visible. If there is an escrow or holdback, specify its purpose, proposed release conditions and interaction with indemnification. Separate a price adjustment from a claim against the seller so the same issue cannot quietly enter the model twice. See working-capital closing adjustments for the detailed calculation questions.
A treatment business can contain several assets and activities that need different treatment. Resolve these four questions early:
Asset and equity structures can have different tax and consent implications. The IRS explains that a business asset sale involves allocating consideration among the assets transferred. Ask your tax advisor to assess the proposed structure before accepting the headline economics. Do not leave a material structure change to the end of negotiations.
The LOI need not reproduce the purchase agreement, but major economic issues should have agreed principles. Put these subjects on the negotiation agenda:
Rollover deserves its own investment review. The SEC’s private-placement guidance highlights illiquidity, limited disclosure and loss risk for applicable private securities. Do not count a potential future exit as cash already earned. An LOI should provide enough clarity to evaluate the proposed investment, without assuming every rollover has the same securities or tax treatment. The separate guides to treatment-center earnouts and rollover equity address the detailed terms. For broader ownership context, see the sister-site guide to addiction treatment private equity.
Exclusivity usually limits some or all discussions with alternative buyers for an agreed period. Read the precise restriction: solicitation, information sharing, negotiations and responses to unsolicited interest may be treated differently. Confirm who is bound and which transactions are covered. A restriction affecting the operating company could also reach a separate property sale or financing unless its scope is carefully addressed.
Tie the requested period to a credible work plan. Ask when the buyer will complete financial review, deliver the first purchase-agreement draft, resolve financing and submit required applications. Establish named decision-makers and a schedule for reporting unresolved issues. A buyer’s need for time is understandable; the seller should know what that time is intended to accomplish.
Negotiate the expiration date, any extension mechanism and the circumstances in which restrictions can end. Address what happens if the buyer changes the price, misses agreed milestones or stops progressing the transaction. Extensions should be considered against new evidence of progress and remaining work. There is no single appropriate exclusivity period for every treatment-center sale, and expiration does not automatically extinguish every surviving obligation.
Identify closing dependencies while selecting the buyer. In addiction treatment, these questions can change the attractiveness of an otherwise strong offer:
For an OTP transaction, SAMHSA’s program-change instructions distinguish ownership, sponsor and location changes. A generic promise to transfer the licenses is inadequate. For any treatment model, define the major anticipated closing conditions and an outside date, then have counsel resolve the detailed allocation of delay risk in the definitive documents.
Agree who may contact employees, referral sources, payers and landlords, and how those contacts will be coordinated. A buyer may reasonably need access to key people, but an unplanned outreach can disrupt operations or reveal a sale before the owner is ready. Preserve the seller’s responsibility for running the business while setting a workable schedule for permitted meetings and information requests.
Patient information requires separate treatment. An LOI or NDA does not by itself establish permission to disclose identifiable substance use disorder records. The HHS Part 2 guidance should inform counsel’s review of applicable records and disclosure pathways. Agree access controls, permitted recipients and return or retention obligations, while using appropriately prepared aggregate information when it answers the commercial question.
The addiction treatment M&A advisor should challenge commercial assumptions and compare the proposal with available alternatives. Transaction counsel should assess binding language, exclusivity, liability and drafting gaps; healthcare counsel should verify the regulatory path. Tax and accounting advisors should test structure, proceeds and adjustments. Coordinate their reviews before signing. A material objection discovered afterward may require reopening terms when the seller has already restricted other options.
Before signing, ask the team to identify unresolved items, estimate their possible effect on proceeds and explain which are acceptable to carry forward. Record the economic assumptions, next milestones and authority to approve changes. If the offer depends on an unverified condition that could materially alter the result, resolve it or make its treatment explicit before granting exclusivity.
Tony Siebel is the Founder and Managing Director of Olympic M&A. His background includes corporate development and physician-practice acquisitions at MDVIP, as well as serving as Vice President and Associate Partner at Stoneridge Partners, including work in its Behavioral Health Division.
Olympic M&A advises founders and healthcare business owners on transactions with private equity groups and strategic acquirers. Learn more about the firm’s behavioral health advisory services and discuss the scope of support appropriate for your business.
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