Demystifying Home Care M&A, Part 2: The Purchase Agreement

In our last article, we walked through the pre-LOI diligence process: what data we ask for, why we ask for it, and how it shapes the offer we put together. Once we agree with a seller on the Letter of Intent, the next major milestone is to draft the purchase agreement and close the deal.

The purchase agreement is a long, detailed legal document that formalizes the sale of the business and establishes the binding terms for both buyer and seller. If you have never been through an acquisition before, it can feel like a lot to take in.

This article outlines the major sections of a typical home care purchase agreement and explains what each one means in plain language. This is not a comprehensive guide to every term or provision you will encounter, and admittedly is skewed to the transactions that we’ve completed, but it should give you a solid understanding of the key building blocks and how they fit together. For each section, we explain what it means in the context of a home care transaction, and we share the "Pando Perspective": i.e., what we prefer, what we have done in prior deals, and why.

Asset Purchase vs. Stock Purchase

Before we get into the meat of the purchase agreement it’s worth clarifying that purchase agreements can take the form of a “stock/equity purchase” or an “asset purchase”.

In a stock deal, a buyer is purchasing the legal entity itself. They get everything, including hidden liabilities that could create problems. That might include a lawsuit from 2019 that's been sitting dormant, a tax position the prior CPA took that the IRS might not love, and a handshake deal with a vendor that's technically still binding. A buyer steps into the seller's shoes completely.

In an asset deal, a buyer is cherry-picking. They buy the specific assets they want which in homecare usually include the client contracts, website and online accounts, IP, office equipment, etc. and leave the legal entity (and most of its historical liabilities) with the seller. They form a newco, drop the assets in, and run a business with a clean balance sheet and a fresh history.

There are tax implications of asset vs. stock purchases because selling certain assets of the business will be taxed differently than transferring ownership in an entity. In an asset-heavy business like manufacturing, a large portion of the purchase price may be allocated to equipment, inventory, and other tangible (i.e., physical) assets which can be taxed as ordinary income rather than at the lower capital gains rate. In home care, there is very little hard asset value to trigger that kind of treatment. Most of the purchase price is allocated to goodwill or intangible assets, which are generally taxed at capital gains rates regardless of how the deal is structured. The result is that the tax outcome for sellers in a home care asset sale generally tends to look much closer to a stock sale than it would in other industries.

Pando Perspective: We prefer asset purchases because they prevent us from inheriting pre-closing exposure we had no ability to prevent. It also usually keeps legal fees lower for both parties and the tax difference to sellers is generally negligible.

What You Are Selling (Purchased Assets)

In an asset purchase agreement, the purchased assets section is the heart of the agreement. It lists everything that will transfer to the buyer at closing. In a home care deal, this typically includes client relationships, books and records, employee files, phone numbers, websites and social media accounts, payor contracts, certain vendor contract, intellectual property and trade names, furniture, equipment, and supplies, licenses, permits, and certifications, and goodwill.

Ironically, one of the most critical assets in a home care business cannot be transferred—the employees. Employment cannot be transferred to a new entity so caregivers and office staff need to be rehired by the buyer. At Pando, we address this during the period between signing and closing by onboarding the seller's team ahead of the closing date (see the Closing Conditions section below).

Pando Perspective: If a given asset is used in the business, we list it in this section.

What Stays Behind (Excluded Assets)

Not everything transfers. The excluded assets section clarifies what the seller keeps. In our agreements, we always exclude

• Cash, bank accounts, investment accounts, and accounts receivable. These represent value the seller earned before closing and belong to the seller's entity, not the operating business.

• Employee benefit plans and any contracts not explicitly assumed. These carry administrative or legal obligations tied to the seller's entity that do not transfer with the business.

Pando Perspective: It’s worth noting that some buyers will require a working capital adjustment at closing, meaning the seller needs to leave a certain amount of cash or receivables in the business. Because Pando has the resources to fund operations from day one, in most cases we let sellers keep their cash and collect their receivables. It is one less thing to negotiate and one more way we try to make the deal straightforward and attractive for sellers.

Liabilities: A Clean Break

One of the biggest advantages of an asset purchase is the ability to draw a clear line on liabilities. The purchase agreement will typically state that the buyer assumes no liabilities of the seller other than the ongoing obligations under the contracts being transferred.

Everything else stays with the seller: outstanding debts, tax obligations, vendor disputes, employee claims, and any liabilities that arose before closing. The seller is expected to pay off all indebtedness and accounts payable in a timely manner after closing.

Pando Perspective: We assume only the go-forward obligations under the contracts we are taking on. Everything else stays with the seller.

How the Purchase Price Works

The purchase price section of the agreement defines the total value the buyer will pay the seller and the form that payment will take. Every deal is structured differently, and the mix of cash, seller financing, holdback, and other components is negotiated during the LOI phase and then formalized here. A typical purchase price in a home care acquisition may include several components:

• Cash at closing. This is actual cash wired to the seller on the closing date. Typically represents the bulk of the deal value

• Seller financing. In many transactions, the seller agrees to finance a portion of the purchase price by accepting payment over time through a promissory note. This is common when the buyer does not have the capital to pay the full amount at closing or wants to spread the payment over a defined period. The note will specify the repayment schedule, interest rate, and what happens in the event of default. Seller financing can make a deal possible that otherwise would not close, but it also means the seller is taking on credit risk. It is also worth noting that in deals with seller financing, the outstanding note balance often serves as the buyer's first line of protection against indemnification claims

• Indemnity holdback. If there is no seller note, it’s common that a portion of the purchase price, often in the range of 10 to 15 percent, is held by the buyer for a defined period after closing. The holdback serves as a form of insurance for the buyer. If there are post-closing adjustments or indemnification claims (more on those below), they can be resolved against the holdback rather than requiring the seller to write a check back to the buyer. At the end of the holdback period, any remaining balance is released to the seller

• Rollover equity. In some deals, the seller contributes a portion of the purchase price back into the acquiring entity in exchange for an ownership stake. This can align the seller’s interests with the buyer’s post-close and gives the seller an opportunity to participate in future growth

• Earnout. An earnout ties a portion of the purchase price to the future performance of the business after closing. For example, the seller might receive additional payments if the agency hits certain revenue or client retention targets over the first year or two

Pando Perspective: Our goal is to structure the deal to reflect the goals of the seller. If the seller is going to continue to run their business for a period of time under our ownership, we encourage rollover equity so they still have “skin in the game”. If the seller is looking to retire, then our preference is to agree on a fair price and pay more cash at closing, with the remainder held back for short, defined period. We typically prefer not to structure deals with earnouts, as they can create complexity and misalignment.

Representations and Warranties

This is often the longest section of the agreement, and it can be the most intimidating for first-time sellers. Representations and warranties (often shortened to “reps and warranties”) are formal statements the seller makes about the condition of the business. They are the seller’s way of putting in writing that the information provided during diligence is true and complete. Here are some typical reps and warranties in a home care purchase agreement, along with what each one means:

• Corporate status and authority. The seller confirms that the business is a legally formed and active entity, and that the person signing the agreement has the authority to do so

• Financial statements. The seller represents that the financial information provided to the buyer is accurate and was prepared consistently with past practices

• Licensure. The seller confirms that the business is properly licensed, certified, and in good standing with all required state and local agencies. In home care, this is critical. Operating without proper licensure can shut down an agency

• Government program participation. The seller confirms that neither the business nor any of its employees have been excluded from Medicare, Medicaid, or other government healthcare programs. This also covers any history of fraud, abuse, or kickback violations

• Regulatory compliance. The seller represents that the business has complied with all relevant laws and regulations, and that protected health information has been properly safeguarded

• Employee and contractor classification. The seller confirms that workers have been properly classified as employees or independent contractors, that wages and overtime have been paid correctly, and that there are no pending labor disputes. In California and other states with strict employment laws, this is an area buyers pay close attention to

• Payor contracts and client census. The seller provides an accurate and complete list of all payor contracts and active clients. An “active” client is typically defined as someone who has received billable services within a recent period

• Taxes. The seller confirms that all tax returns have been filed and all taxes have been paid

• Litigation. The seller discloses any pending or threatened lawsuits, claims, or investigations

• Insurance. The seller confirms that adequate insurance coverage is in place and that there are no outstanding or denied claims

This section always makes sellers nervouce. Nobody likes signing a document that says “everything I told you is true and here is my signature to prove it.” But reps and warranties are standard in virtually every acquisition and are critical for the buyer to ensure that you stand by the information that you’ve shared with the buyer. 

Pando Perspective: Our reps and warranties are standard for a transaction of this size. We are not trying to create a gotcha. We want accurate information so we can plan the transition and operate the business effectively from day one. If something comes up during the process that changes a rep, we work through it. 

Closing Conditions

Before getting into the specifics of closing conditions, it is worth understanding the two ways a deal can be structured from a timing perspective. The first is a “simultaneous sign and close” in which both parties execute the purchase agreement and complete the transaction at the same time. There is no gap between signing and closing meaning that once the agreement is signed, ownership transfers immediately. This approach is simpler and eliminates the risk that something changes between signing and closing, but it requires that all transition work, regulatory approvals, etc. are fully in place before the agreement is executed.

The other structure is a "staggered sign and close", in which the parties sign the purchase agreement first, and then closing occurs at a later date, typically a few weeks later. This creates a defined period during which the buyer and seller complete the remaining steps needed to transfer the business.

Though it creates an extra step, a staggered sign and close is almost always the right approach in home care. The buyer needs time after signing to communicate the deal with the admin team, notify clients, onboard the seller's caregivers, complete background checks and compliance documentation, coordinate with payors, finalize licensure and ensure that clients can be served without interruption on day one. Without the interim period, all these things would need to be completed before the final terms of the agreement are inked.

With that context, a purchase agreement with a staggered sign then close will include a set of conditions that must be satisfied before the deal can close. In our experience, buyer-side conditions could include:

• Employee onboarding. All (or almost all) of the employees (including active caregivers) must have completed the buyer’s onboarding requirements. This includes compliance documentation, signing a new employee handbook, etc

• Regulatory consents. All required licenses, consents, and regulatory confirmations must be obtained or transferred

• Lease assignments. If the business operates out of leased office space, the landlord must consent to assigning the lease to the buyer

• Referral transition plan. The seller delivers a written plan for transitioning key referral relationships to the buyer. In home care, referral sources are the lifeblood of new client acquisition, and this condition ensures that the transition is thoughtful rather than abrupt

• No material adverse change. The business must not have experienced a significant negative change in operations, financial condition, or prospects between signing and closing

Pando Perspective: Our closing conditions are designed to protect continuity of care. The most onerous closing condition is re-onboarding all caregivers to the new entity, and we work closely with sellers and their team during the pre-closing period to make sure these conditions are met.

Pre-Closing Covenants: Between Signing and Closing

During the period between sign and close, the seller is still running the business, but the agreement places certain obligations on how it is run. These are called pre-closing covenants.

In short, the seller agrees to operate the business in the ordinary course: maintain staffing levels, continue marketing and caregiver recruitment, honor existing contracts, keep referral relationships intact, and avoid making material changes to operations, compensation, or spending without the buyer’s consent. The intent is that the business the buyer is purchasing at closing should look like the business that was evaluated during diligence.

Pando Perspective: We keep pre-closing covenants simple. Run the business the way you have been running it. Do not make unusual hires, fire key staff, or sign new long-term contracts without a conversation, etc.

Indemnification

Indemnification answers the question: what happens if something goes wrong after closing? If a representation or warranty turns out to be inaccurate, a pre-closing liability surfaces, or a restrictive covenant is breached, indemnification determines who pays for it and how. This is often one of the more heavily negotiated sections because the interests naturally diverge: the buyer wants protection against risks it could not evaluate or prevent, and the seller wants to move on without the threat of a claim hanging over them.

The agreement will also typically require the seller to purchase a tail insurance policy at closing. This extends the seller's professional liability coverage for a defined period after the sale, so that claims arising from services provided before closing are covered by insurance first, before anyone reaches for the holdback.

Pando Perspective: We as the buyer are taking on risk by wiring cash at closing, so we need the seller to stand behind what they are selling and what they have represented. If something from before closing causes real damage after the deal is done, the seller should be on the hook. That said, we would only pursue a claim if it causes real, measurable damages, not minor issues or technicalities. We are playing a decades-long game of becoming the buyer of choice in home care, and our reputation hinges on what happens after the deal closes. In every deal we have completed, the full holdback has been returned to the seller.

Non-Compete and Restrictive Covenants

Nearly every purchase agreement includes a non-compete clause. The seller agrees not to operate or own a competing business within a defined geographic area for a defined period of time (typically two to five years). This protects the buyer’s investment by ensuring the seller does not take the goodwill, relationships, and knowledge from the sale and immediately use them to compete.

The agreement will also typically include non-solicitation provisions, preventing the seller from recruiting the employees or clients of the business post-close. And there are confidentiality obligations that survive the transaction.

These provisions are standard and expected. If you are selling your agency and planning to retire or pursue something outside of home care, they will have no practical impact on your life. If you are considering staying in the industry, it is worth understanding the specific terms (e.g., restricted to a given geography), so you know what is and is not permitted.

Pando Perspective: Our non-compete and non-solicitation terms are standard for the industry and reasonable in scope. We are not trying to prevent you from earning a living, just protecting the business we just purchased.

Disclosure Schedules

Disclosure schedules are the appendix to the purchase agreement, and they do a lot of heavy lifting. Every representation and warranty in the agreement is a general statement: "the business is in compliance with all laws," "there are no pending lawsuits," "all tax returns have been filed." The disclosure schedules are where the seller says, "that is true, except for these specific items."

For example, the reps and warranties section might state that there are no pending or threatened legal claims against the business. If the seller has an employee lawsuit or a billing dispute, those would be listed on the corresponding disclosure schedule.

In a home care transaction, disclosure schedules commonly cover the following:

• Any open or threatened litigation, regulatory complaints, or government investigations

• All required licenses, permits, and certifications, along with their expiration dates and renewal status

• A complete list of all payor contracts and their current status, including Medicaid and private pay agreements

• Material contracts the business is a party to, including vendor agreements, referral arrangements, and office leases

• Employee-related matters, including any pending wage claims, classification disputes, or workers' compensation cases

• Any known issues with tax filings, outstanding tax liabilities, or ongoing audits

• A list of all insurance policies in effect, including coverage limits, and any open or denied claims

• Any related-party transactions, meaning contracts or financial arrangements between the business and its owners, family members, or affiliated entities

A well-prepared set of schedules can protect the seller because a known risk cannot be the basis for an indemnification claim after closing. The problems arise when something is not disclosed and the buyer discovers it later.

Pando Perspective: We send a disclosure schedule request early in the process and work with sellers to complete it thoroughly. We encourage sellers to involve their attorney in preparing the schedules. When in doubt, disclose it! The more complete and accurate the schedules are, the smoother the closing and the less likely either side is to have a post-closing dispute.

Termination

The termination section defines the circumstances under which either party can walk away after the agreement is signed but before the deal closes. Common termination triggers include a material breach by either party that is not cured within a defined period, the failure to satisfy closing conditions by a specified drop-dead date, or a material adverse change in the business between signing and closing.

 The agreement will also address what happens when a deal terminates: whether any deposits or escrow funds are returned, whether either party owes a breakup fee, and how confidential information must be handled after the deal falls apart.

Pando Perspective: We include straightforward termination provisions that give both sides a fair exit if something genuinely changes. We want the closing conditions to be achievable such that a termination would almost never come into play.

Transition and Post-Closing Cooperation

The purchase agreement will typically include provisions requiring the seller to assist with the transition of the business after closing. In home care, this is particularly important because the seller often has personal relationships with referral sources, key clients, and community partners that cannot be transferred on paper alone.

Transition obligations commonly include introducing the buyer to key referral sources and client families, assisting with the transfer of billing systems and payor credentials, being available to answer operational questions for a defined period after closing, and cooperating with any regulatory filings or license transfers that extend beyond the closing date.

Pando Perspective: We value seller involvement during the transition and try to make it as easy as possible. However, we do not expect sellers to work full-time after closing unless that is their desire and was the plan from the beginning.

What Comes Next

The purchase agreement is the culmination of everything that happens during the M&A process: the initial conversations, the diligence, the LOI, the negotiation. By the time both parties sign, there should be no surprises. The agreement should reflect what was discussed and agreed upon, translated into the precise language that lawyers require.

Our goal at Pando is to make this process as transparent as possible. We want sellers to understand what they are signing and why each provision exists. A well-structured purchase agreement protects everyone: the seller, the buyer, the employees, the caregivers, and the clients.

If you are considering selling your home care agency and want to understand what the process looks like before committing to anything, we are always happy to have a conversation.