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Employee purchase of TPA Firm


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I have been presented with the opportunity to purchase the TPA firm that I currently oversee. I have the advantage of knowing the firm inside and out since I have run it for the last 6 years. I have a good crew of people; all credentialed long term employees.

Unfortunately, I do not have the funds for an outright purchase, so an "owner finance" deal is the only option. Any suggestions or options I may be overlooking? Should it be a stock or asset purchase? Really not sure what questions to ask at this point. We've just started talks, so any pointers would be appreciated!

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Have you thought about having the other emplolyees helping you purchase the firm? Maybe they are willing to help put money down?

Have you thought about using an ESOP to structure the purcahse? There could be benefits to both the seller and buyer.

I wouild add most purchases I see are asset purchases. If you purchase the stock you are buying all future liabilities of the old firm. In that regard the need to engae an attorney is important.

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You definitely need to retain an attorney experienced with business acquisitions. While you generally avoid inheriting the seller's liabilities if it's an asset purchase, there may advantages to a stock purchase, such as (a) not having to wrestle with issues attributable to the fact that the employees are being terminated by seller and hired by buyer in an asset sale, and (b) not having to deal with the assignment of contracts, most significantly having to secure the consent of the seller's clients to the assignment of any service contracts they may have with seller.

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Yes, engage a good attorney. You may also want to consult with various consultants to the TPA world first to get some ideas about valuation and types of deals being done. They are out there.

Basically everything, including stock or asset purchase, is negotiable. There are differing tax implications for these that also impact the sales price. Of course the time period for you and the seller is critical, both in terms of structuring a buyout but also in transitioning client and referral relationships.

You also should have a "vision" on what you want your company to be once it is yours. It is this vision that will sustain and drive you to move ahead when obstacles present themselves and will help you motivate your employees to work toward a common goal.

Are you good at business development? I've seen good adminstrators and managers hang out their own shingle and not prosper because they don't develop new relationships well.

Have you thought about owning your own firm before?

This may be a great opportunity, but it is a good time for an honest self-evaluation to determine if this is a good fit for you.

Good luck.

I carry stuff uphill for others who get all the glory.

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"... having to secure the consent of the seller's clients to the assignment of any service contracts they may have with seller."

No doubt, your attorney will review several existing service contracts to make sure there is no "trigger" related to the sale.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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