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Buying a pharmacy? What to consider

Buying a pharmacy is exciting and potentially stressful. However, with careful planning, your advisers can lessen the negative impact of any aspect of the transaction.Healthcare front page

In his regular column for Scottish Pharmacist, Mark Tenby outlines what you should consider before you make the decision to buy.

The first stage of the process concerns the marketing of the pharmacy by the vendor of the selling agents.  If you do contemplate a purchase it is important to register with the agents that operate in the sector. Their knowledge of your requirements (locality, size, price, etc.) will help prioritise opportunities for you.

Appoint the right team

Having your advisers ready to assist is crucial, as they can assess the proposition and advise on the key information that is needed for the ‘viewing’ process. By discussing the proposal early and carrying out initial due diligence, you will be better placed to make the right decision at your own pace rather than, perhaps, in haste.

How much can you afford to pay?

Knowledge of your own resources from your accounts and what might be available from a lender will be key to purchase negotiations and paying the right price for the pharmacy. If a property is included in the assets being acquired, then the early use of a surveyor is vitally important.

What’s it worth?

You will need to examine the thoroughness of the vendor’s valuation model and the credentials of the preparer. Pharmacy valuation calculations could consider various methodologies along with turnover and profits, but much can depend on the reason for the sale – retirement/ illness, relocation and, of course, financial distress.

Agree ‘Head of Terms’

If negotiations continue, the next stage is agreeing ‘Head of Terms’ (HoTs). This is a summary of the terms that the buyer and seller have agreed in principle and you need to have then checked by your solicitor. Often, it can be difficult to retrace your steps once they are agreed and draft documentation has been prepared.

Get clarity on exactly what are you buying

Assuming the HoTs are agreed by both parties, the next stages are financial and legal due diligence, following which the Sale & Purchase Agreement (SPA) will be available. A lot of this depends on whether the pharmacy – owning company and its share capital if for sale or whether an asset sale is taking place. The latter may include the premises, NHS pharmacy contract, goodwill, staff and stock. There are pros and cons to both routes, not least in terms of tax and price, and it is vital that these are clarified as early as possible by both sides and their advisers.

The Sale & Purchase Agreement (SPA)Icons 18

The SPA should address a range of issues, including;

  • It will ensure that information about the business, including its accounts, is reliable. It is essential to view up-to-date management accounts for the pharmacy you wish to buy as the financial health of a pharmacy may have deteriorated since the annual statutory accounts were produced.
  • It will also ensure that you can rely on prescription volume and other services by obtaining NHS statements for the last three years.
  • Damaged/ old stock should be excluded from the valuation which should be carried out by an external valuer.
  • Links with local doctors’ surgeries and residential/ nursing homes.
  • Third-party pharmacy and GP relocations.
  • On purchasing a company, you inherit its liabilities and therefore care needs to be taken to negotiate the necessary warranties and indemnities from the seller to protect your interests.
  • Restrict the seller from directly competing with you after completion.
  • Property issues such as transfer of ownership, lease provisions, planning consents and repairs.
  • Equipment specifications, age, insurance and any software contracts.
  • All employee information (pay rates, benefits, pensions, holidays, etc.) must be disclosed so that the buyer knows what the responsibilities are going forward under the Transfer of Undertakings (Protection of Employment) regulations (TUPE).
  • Locum and other supplier relationships.

Raising finance to fund the purchaseIcons 17

If you are involving a lender in the pharmacy acquisition, make sure that you deal with representatives that specialise in healthcare. All main banks have specialist healthcare teams and your solicitor should advise you on the loan agreement obligations such as security over assets. You should also ask your accountant to prepare financial projections for three years both for the bank’s requirements and to see how the new pharmacy will fit into your existing financial modelling.

Seek professional advice early

This article does not constitute legal advice and does not obviate the need to obtain specific legal advice of other relevant professional advice relating to your specific circumstances. However, with careful planning and sound guidance, you can reduce the stress associated with the pharmacy purchase and concentrate on making your business a success.

If you are contemplating a purchase or sale, please get in touch and Mark Tenby, Director, Martin Aitken & Co, will talk you through the process so that you are fully aware of what’s involved, the time it could take and the costs associated with buying or preparing your pharmacy sale.   

This article first appeared in the June edition of Scottish Pharmacist. To read Mark's full article click here. maco serivces for practice owners

 

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