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Considering a Practice Merger?

GP Practices, like waistlines, are getting bigger. This trend has been clear for many years, and appears to be accelerating. There are many potential benefits of creating larger practices, but how do you actually go about merging?

Assuming both the merging practices are partnerships, and that the partners in the new practice will come from both sides of the merger, there will need to be an ‘asset transfer’ from the 2 legacy practices into a new, combined practice.

The first step in this process is typically one of confidence building. Partners from both practices should meet frequently and decide whether they like each other and feel they can work together. Personality conflicts are the most common cause of failed mergers so you should not underestimate the importance of this. As confidence grows each practice should disclose all relevant facts about themselves to the other. Sometimes practices find it helpful to sign a ‘non disclosure agreement’ before doing this, though in our experience this is rarely necessary.

The data gathering and exchange should focus on the following 5 areas: Financial; Staffing; Processes (what you do and where you do it); Technical/IT and Legal. Typically you will want an accountant to review and compare the last 3 years of accounts, and a solicitor to report on any contracts or disputes which give concern. This process is called ‘due diligence’ and it is a good idea to get both practices to confirm that they have made a full disclosure.

The next step is to design the future combined practice. This will mainly involve work in the staffing, processes and technical workstreams, but will also need difficult decisions about restructuring contracts. Most importantly, will you merge the PMS/GMS contracts?  You should be aware that this is not always necessary or financially worthwhile and it is a good idea to seek advice on this before you start negotiating with NHS England. If you have not done so already it is often a good idea to inform staff of your plans at this stage, and to keep them regularly updated in order to stay compliant with your TUPE obligations.

Negotiations should also be commenced with the banks if loans and mortgages are to be restructured; with the landlord(s) if leases need to be agreed or varied; and with other suppliers if supply contracts (such as telephones) will need changing.

This is also the time to start documenting the transaction in a Business Transfer Agreement (‘BTA’). This sets out matters such as who will be a partner in the new entity; which assets will be transferred and what happens to those which are left behind; obligations to notify NHS England, the CQC and other regulators; obligations to staff and compliance with TUPE regulations; obligations about the surgeries; details of any financial settlement; and warranties about the condition of the legacy businesses which are being transferred. The warranties are particularly important because expensive surprises can sometimes lurk hidden in a business for years and when they emerge it is important to understand who will be liable.

During this time you should be particularly careful about how you deal with staff, as it would be unlawful to make anyone redundant in contemplation of the merger. Any claim for wrongful dismissal could be made against either the old practice or the new combined entity.

As the merger date approaches you will need a Partnership Agreement for the new, combined practice.

For most practices a merger is a very rare event, so it can either seem daunting or get over-simplified. This is one of those occasions when it can make sense to pay an external advisor who has done it before and can guide you through the process. We have even heard of this cost being reimbursed when NHS England is particularly keen for the merger to happen!

Posted on November 18th 2014 in News and Publications, Newsletters

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