Independent pharmacies normally change ownership through a one-time event: a single proprietor selling his or her business to a willing buyer. Nonetheless, it’s likely the biggest transaction the seller will ever face, with numerous details to be hammered out prior to and during the process.

At the same time, the buyer naturally wants to negotiate an optimal outcome. This could be based on securing an attractive purchase price, finding a location that’s close to home or continuing a long-standing store’s legacy.

Whether you’re a prospective seller or buyer, you shouldn’t go it alone when taking a pharmacy to—or off—the market. Fortunately, however, it’s not hard to find highly qualified help. You can tap specialized expertise from a team comprised of a pharmacy acquisition advisor, attorney, accountant and lender, all working toward the common goal of streamlining the ownership transition.

 

Enter the dream team

Let’s run through the key functions of all the team members involved when a pharmacy ownership transition begins to take shape.

First, a buyer’s preference for pharmacy location sets the wheels in motion for finding a suitable seller. An acquisition advisor can typically identify seller candidates within 14 days if it’s a nationwide search for an available pharmacy. On the other hand, the buyer may be looking to set up shop in a precise geographic area, in which case a match will be dependent on the presence of potential sellers. The wait could be considerably longer than two weeks if the buyer is looking for a pharmacy in an isolated region with no pharmacies currently for sale.

In any event, assuming a successful preliminary pairing, the acquisition advisor orients the seller on what to expect once the deal starts to unfold. Activities include analyzing pharmacy financials, organizing business records, determining whether pre-sale improvements should be made to the seller’s store, preparing a pharmacy valuation and packaging financial documents for buyer review.

Working as an intermediary, the acquisition advisor can help guide the drafting of a letter of intent (LOI), which is a non-binding agreement that identifies the buyer, the amount he or she is willing to pay and any contingencies that must be addressed before a formal deal can be completed. Along the same lines, the seller agrees to make a good-faith effort to provide any information needed to move the deal forward during the due-diligence phase, which typically lasts about 30 days after both parties sign the LOI.

During that 30-day window, the buyer (unless self-financing) should start working with an accountant and lender to obtain pre-approval for a loan to purchase the business. The pharmacy accountant takes a deep dive into the store’s financial and operational reports and calls out any discrepancies that could hold up the deal. At a minimum, the accountant requires access to a current balance sheet, year-to-date profit and loss statement, and federal and state income tax returns for the past three years.¹ Meanwhile, the lender needs time to verify that all reports and documentation fully support the case for making the pharmacy loan.

The attorney comes into play at the end of due diligence by drafting a purchase-and-sale (P&S) agreement for the buyer and seller to execute, which, in contrast to the LOI, is a legally binding document. The P&S compels the buyer to acquire the business corporation or the assets of the business with the agreed-on sale price to the seller, and the seller to transfer the business corporation or the assets of the business to the buyer, with both actions happening on a specified closing date. If unanticipated problems arise after closing, the P&S may give the buyer the legal right to offset back-end payments against damages sustained as a result of having to address those problems.² Having a pharmacy attorney to offer guidance in this situation is undoubtedly valuable as well. 

 

Why experience matters

As a buyer or seller, you’ll ultimately make the decisions on whom to bring aboard your pharmacy transaction team. It’s not mandatory that you work with a pharmacy-focused advisor, accountant, attorney or lending institution. But keep in mind that specialized professionals have the experience to spot potential issues and red flags that generalists might miss.

Here’s a real-world example: In the midst of a pending negotiation, a drug wholesaler balked at setting up a new account for the prospective buyer because the level of controlled substances dispensed by the for-sale pharmacy appeared excessive. Given the ongoing opioid crisis nationwide, this was a legitimate concern. The experienced acquisition advisor conferred with teammates at a pharmacy lending institution and determined that the pharmacy bought drugs from multiple wholesalers. As it turned out, the pharmacy’s dispensing numbers for controlled substances fell in an acceptable range as a percent of total prescriptions, according to the lender. The hesitant wholesaler had been looking only at purchases from its own company, which skewed the numbers. Once the wholesaler heard the advisor’s overall analysis, the account issue was resolved and the deal moved forward. Without this type of collaborative intervention, the transaction could have been held up significantly.

As this case shows, it’s the role of any dream team member with pharmacy-specific credentials to head off potential pitfalls by asking the right questions, listening intently and leveraging a collaborative approach.

One other thing to note when it comes to leaning on experience: An important part of the process is being prepared and putting yourself in the best possible position for what happens next. If you’re just starting to consider buying or selling, an independent pharmacy advisor can elaborate on strategies to move forward and connect you with your dream team of specialists. Together, they can guide you through the process based on what you’re hoping to achieve and help you secure your best possible future state.

<sup>1. National Community Pharmacists Association. Buying and Selling a Pharmacy. http://www.ncpa.co/pdf/WP-buying-selling-pharmacy.pdf

2. Ibid</sup>