How to Sell A Pharmacy

Preparing Your Pharmacy for Sale

The first step in selling a South Florida pharmacy is preparing an organized set of financials for the last three years of operations. The financials may be either tax returns or profit and loss reports which establish the adjusted owner benefit or the cash-based economic profits generated by a working pharmacist. Next, the owner may prepare key data points of the pharmacy such as the monthly amount of prescriptions or scripts generated by the pharmacy over the same three year period, the current level of inventory, and the active insurance or Pharmacy Benefit Manager (PBM) contracts. Then the pharmacy may be evaluated by an experienced business broker in preparation to confidentially market the pharmacy for sale. Both individual pharmacists and national or regional pharmacy chains should be targeted as potential buyers in order to create a liquid market and competing offers which will maximize the final purchase price.

Pharmacies Highly Regulated

The highly regulated nature of the pharmacy industry creates a formidable barrier to entry for new competitors and hence strengthens the valuation of a pharmacy when it comes time to sell. Pharmacies in Florida must be properly registered with the Florida Department of Pharmacy, typically with a community pharmacy permit for standard community pharmacies and compounding pharmacies. Moreover, Florida law requires a licensed pharmacy to employ a Pharmacist In Charge (PIC), legally designated as the Prescription Department Manager, at each location who is held accountable for the pharmacy’s daily operations. In the sale of an independent pharmacies owned by a licensed pharmacist, the buyer or an eligible employee must be made the new PIC. The new PIC must pass qualification standards when the buyer transfers the state license through a Change of Ownership (CHOW) application.

Valuing A Pharmacy

Pharmacies are valued as a multiple (3-4x) of the most recent annual adjusted owner benefit with inventory (at cost) to be paid separately subject to the buyer’s inspection immediately before closing. The valuation multiple of pharmacy chains is on the high end due to the benefits of revenue and cost synergies obtained from scaling multiple locations. Absentee-owned pharmacies also receive premium valuation multiples since the buyer will face minimal disruption risk and will avoid expenses from having to replace the owner’s active role. Factors affecting the valuation of a pharmacy include the historical growth rate of sales and profits, level of owner-dependency, customer base, growth in the volume of scripts, transferable PBM contracts, and lease/location. The valuation multiple assigned to a pharmacy should be in line with comparable pharmacies for sale on the market with similar operating characteristics.

Confidentially Target Strategic Buyers

Once a pharmacy is listed for sale by a business broker, it should be confidentially marketed in a way that shields the actual identity of the business. This protects the seller’s privacy and prevents staff, customers, and competitors from learning of the potential sale. All prospective buyers – both individual pharmacists and pharmacy chains – must sign a Non-Disclosure Agreement (NDA) prior to receiving the confidential listing information. Pharmacy owners should be aware that chains such as Walgreens or CVS may prefer to simply purchase the prescription files, transfer the files to their own system, and close the physical location. The purchase price in such circumstances may not reflect the pharmacy’s intrinsic value or the present worth of future cash flow. The business broker must target as many strategic buyers as possible so that the seller may weigh all competing offers and decide what’s best for themselves and their legacy.

Stock Purchase v Asset Purchase

  •  A key component in the sale of pharmacies is how the transaction is structured in order to ease the transferability of the pharmacy’s licenses and PBM insurance contracts.
  • Most business transactions are structured as asset purchase deals where the buyer creates their own corporate entity and purchases the assets of the seller’s corporate entity.
  • The seller’s corporate entity is extinguished after the sale and the buyer does not inherit the seller’s corporate debt or liabilities.
  • In contrast, a stock purchase deal is where the buyer individually purchases the shares in the seller’s corporate entity which remains intact and operational after the sale.
  • The downside with a stock purchase deal is that the buyer does inherit the seller’s corporate debt and liabilities.
  • Like the sale of other healthcare companies, the sale of pharmacies is often structured as a stock purchase deal so that the buyer can keep the seller’s corporate entity and tax identification number after the sale.
  • This allows for a much faster and smoother transfer of the pharmacy’s licenses and PBM insurance contracts since the buyer will not need to re-apply for these licenses and contracts.
  • The application process can take many months for the buyer to transfer the licenses when not using a stock purchase deal.
  • The PBM insurance contracts also may take many months to transfer, and may not even transfer at all if the insurer decides not to confer the same coverage and insurance contracts to the buyer’s corporate entity.
  • Ultimately the structure of the deal (stock purchase or asset purchase) is a judgment call for the buyer and their legal counsel based on the specific circumstances of the pharmacy being purchased.

Pharmacy owners may improve the value of their business by organizing their historical financial records, obtaining key data points such as the volume of scripts and PBM contracts, and hiring the right business broker who will confidentially target strategic buyers while highlighting the pharmacy’s competitive advantages in the marketplace. Selling an independent retail pharmacy, specialized compounding pharmacy, or pharmacy chain with multiple locations should be always conducted in a confidential manner in order to prevent disruption of the day to day operations.

 

Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.