GP Practice Mergers: What to check in the accounts

By Nita Kotecha, Senior Manager, Healthcare

Most merger conversations start with clinical fit, premises and culture. The accounts tend to come later, often once the direction is already set. That order is the wrong way round, because the financial position of the practice you are merging with becomes your financial position on completion, and by then the room to renegotiate has largely gone.

What does joint and several liability actually mean?

It means that after completion, every partner in the merged partnership is individually responsible for the whole of the partnership’s debts, not just their own share. A liability that arrived with the other practice becomes a liability you can be pursued for personally.

This is the single most important thing to understand before any merger conversation gets serious, and it is the reason financial due diligence is not a formality. An unresolved dispute with a supplier, a partnership loan nobody mentioned, a tax liability sitting on an old year, an employment claim that has not yet been filed: after completion these are shared, and they are shared without limit. The question is never simply whether the other practice is profitable. It is what else comes with it.

None of that makes mergers a bad idea. Practices merge for sound reasons, and scale genuinely helps with resilience, recruitment and the ability to take on neighbourhood work. But the partners who come out of a merger comfortable are almost always the ones who asked awkward questions early, while there was still time for the answers to change the deal.

What should you be asking for?

3 years of full accounts, not summaries, and the underlying detail behind them.

Full statutory accounts tell you the shape of the business. What they do not always show is where the risk sits. Ask for the partnership loan position, including any personal borrowing by partners that is serviced through the practice. Ask for the tax position on open years, and whether any partner has an outstanding liability the partnership has been funding. Ask for supplier contracts with long notice periods or automatic renewals. Ask whether there is any ongoing or threatened litigation, and whether any patient complaints have escalated.

Then ask for the things that never appear in the accounts at all. Dilapidations exposure on leasehold premises is the classic example: a liability that is entirely real, potentially substantial, and invisible until someone goes looking for it. Equipment on lease rather than owned. Historic pension arrears. Accrued staff leave that has built up over years and will crystallise on transfer.

Profit per partner session is the number that usually matters most in the negotiation, because it drives how the merged partnership shares income afterwards. 2 practices can report similar headline profitability while running very different session structures, and aligning remuneration across that gap is where a lot of merger goodwill is spent. Working it out early gives both sides a factual basis for a conversation that otherwise becomes personal.

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"After completion, a liability that arrived with the other practice is a liability you can be pursued for personally. The question is never just whether they are profitable."

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Why do the premises cause the most trouble?

Because merging practices are tempted to leave them until later, and premises are the one thing that does not tolerate being left.

Most mergers involve a mix of freehold and leasehold, and often a mix of ownership structures within that. Premises may be held as a partnership asset or owned personally by individual partners and used by the partnership. Those 2 arrangements behave differently on merger, and the difference affects who carries the cost, who carries the risk, and what happens when a partner later retires.

The practical questions are straightforward to ask and uncomfortable to leave unanswered. Who will own what after completion. How leasehold obligations transfer, and whether the landlord’s consent is required. Whether existing mortgage arrangements permit the change and whether the lender has to agree. What happens to NHS premises funding, notional rent or cost rent under the new structure, and whether the ICB needs to approve a change in occupancy. Whether there are dilapidations or repairing obligations that have been quietly accruing.

The temptation is to record that the surgeries will simply stay as they are. In practice that rarely survives contact with a lender, a landlord or a retiring partner. Better to settle it during due diligence, when both sides still have room to move, than after completion when one side has considerably less.

What happens to staff costs?

Staff transfer automatically under TUPE, and they transfer with their existing terms, service history and accrued liabilities intact.

That means the merged partnership inherits whatever the other practice agreed with its team, including contractual terms that may be more generous than your own. Where 2 practices have different pay scales, different leave entitlements or different sickness arrangements, those differences do not resolve themselves on completion. They sit side by side in the same organisation, and harmonising them afterwards is a slow and sometimes expensive piece of work.

Ask for the full staff list with start dates, contracted hours, salaries and any non standard terms. Ask about accrued but untaken leave. Ask whether any employee is on long term sick leave, in a grievance process, or subject to an ongoing disciplinary matter. And model the combined staffing cost properly rather than adding the 2 payroll figures together, because the merged practice will not need 2 of everything and the savings, where they exist, take time to realise.

What about the NHS pension position?

It needs attention earlier than most practices expect, and the administrative side is easy to underestimate.

PCSE should be notified of a merger at least 6 weeks before the planned change, and for larger mergers involving several practices, earlier still. Estimates of pensionable profits will need to be resubmitted so that contributions collected each month reflect the new structure rather than the old one. Where that is left late, partners end up with contribution levels that do not match reality and a reconciliation exercise that runs long after the merger itself is done.

It is worth allocating this to a named person on each side early in the process. It is not complicated work, but it is the kind of task that falls between 2 practices during a merger and only surfaces when something has gone wrong.

How long should this take?

Longer than most practices allow. Due diligence done properly takes 2 to 3 months, and the merger process as a whole is best started 9 to 12 months before the intended date.

That timeline exists because several things have to happen in sequence rather than in parallel. The ICB or NHS England may need to consent depending on whether the practices hold GMS, PMS or APMS contracts, and that conversation is far better started early than sprung late. Lenders and landlords work to their own timetables. And the financial picture that emerges from due diligence often changes what both sides want from the agreement, which means the legal drafting cannot sensibly begin until the numbers are settled.

The legal documents themselves, the business transfer agreement and the merger partnership agreement, are a solicitor’s work and should be handled by one who knows general practice. What the financial due diligence does is tell your solicitor what needs protecting. Where a liability is identified and cannot be resolved before completion, it can often be dealt with through an indemnity or warranty in the transfer agreement, but only if someone found it first.

The practices I work with that have merged well are not the ones that moved fastest. They are the ones that spent an unglamorous couple of months going through each other’s numbers properly, found 2 or 3 things nobody had mentioned, and dealt with them while dealing with them was still straightforward.

If your practice is considering a merger, the financial due diligence is worth starting before the conversation gets far enough to be difficult to step back from. I work with GP practices across the Midlands on exactly this kind of review. There is more on how we support practices at ballardsllp.com/sectors/healthcare

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This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.

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