Are you ready to own a pharmacy?

MACO pharmacy advert buy sell Mar 19

Are you ready to own a pharmacy?

With the pharmacy sales market remaining buoyant and the banks maintaining a healthy appetite to lend to pharmacists, 2018 is proving to be a good year so far for transactions.

A recent report by Christie & Co noted that sales activity in the first quarter of 2018 was up by 31% and enquiries from those looking to buy were up by 18% compared to the same period last year.

Here are some questions and pointers if you are considering a purchase: 19942 MACO Tax Planning 44

Why are you buying? Seems like a straightforward question but you will probably be surprised to hear that a good number of people who begin the process do not actually end up buying. You should set yourself clear objectives as this will provide you with the motivation to get over the hurdles that will come your way throughout the process.

Are you financially ready? The initial purchase is a significant investment alongside the first year running costs and any refits or upgrades to fixtures and fittings you wish to make. Determine your budget early and what cash you will need for working capital and renovations. 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 get a surveyor involved too.

What type of pharmacy are looking to buy? Think about the size and location of the pharmacy. Are you looking to manage the pharmacy yourself or employ people to manage and run it for you? What level of return do you require? It’s best to decide on these factors early as it will ensure that you don’t waste time on looking at potential purchases that don’t meet your requirements. You will also need to examine the thoroughness of the vendor’s valuation model and the credentials of the preparer.

Get up to speed on the potential hurdles you will face. A lot of this depends on whether the pharmacy-owning company and its share capital is for sale or whether an asset sale is taking place. The latter may include the premises, NHS contract, goodwill 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.

 Warranties and indemnities are a typical feature of Sale & Purchase Agreements (SPAs) for pharmacies. A warranty may be included stating that there have been no claims against the business. An indemnity clause often included in SPAs might state that the seller must bear any costs incurred by unresolved litigation against the pharmacy business after completion. Your solicitor will seek clarity on both so there are no nasty surprises later on. 19942 MACO Tax Planning 27

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 purchase Growth support

If you are involving a lender in the pharmacy acquisition, make sure that you deal with representatives that specialise in Healthcare. All the 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 or 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 ready to buy or sell, get in touch and I’ll talk you through the process so that you are fully aware of what’s involved, the time it could take and the costs.

This article was first published in Scottish Pharmacist June 2018