Buying a Pharmacy
Understanding how to purchase a pharmacy will increase the chances that you purchase a pharmacy that you actually want. The number one reason why pharmacy acquisitions don’t end up occurring is that the buyer and the seller lack the knowledge needed to complete the transaction. If you, the buyer, know what to expect during the process, the seller will have more confidence that you will actually be able to purchase the business, making it more likely that they will choose you to be the buyer. We have outlined below the key steps that occur when buying a pharmacy.
As a buyer, you will need to have an excellent credit score (i.e., 750 or above), and have no past bankruptcies, short sales, or foreclosures. If you are obtaining a bank loan you will need to finance 10% of the acquisition cost with your own personal funds. It’s important to start saving early and reduce as much of your debt as possible, so that you’re ready to buy.
Find a Pharmacy
Identify the characteristics of the pharmacy that you’re looking for such as type (e.g., full line retail, long-term care, compounding, specialty), size (e.g., number of scripts, total revenue), and location (e.g., region, state, city). Then discuss these characteristics with groups like Independent Rx to identify opportunities that match your interests.
Once you have found a pharmacy for sale that is of interest to you, it’s important to obtain basic information such as tax returns, script summaries, payroll information, top drug sales, and top payers to determine the actual value of the store.
Submit a Letter of Intent to the Seller
A letter of intent is a non-binding document that outlines the proposed purchase price for the business, inventory, and real estate, if applicable. This document will outline the proposed form for the purchase (i.e., stock or asset purchase), and will also state if a note payable is required to be established between the buyer and the seller as part of the transaction. The letter of intent serves to establish basic terms for the transaction that the buyer and seller will need to agree upon.
Once a letter of intent is agreed upon, it’s reasonable for you as the buyer then to complete a certain level of due diligence, so that you can make an informed decision before purchasing the pharmacy.
While the due diligence process is taking place, you should also attempt to secure financing for the purchase. Financing is typically done through a bank approval. It’s recommended that you reach out to a bank that is familiar with the pharmacy industry, so that they will have the knowledge needed to get you the amount of funds required to be successful. Independent Rx has strong relationships with these lending institutions and can introduce you to them, if requested.
Once a bank approval is received and due diligence is completed, the seller will want to see a purchase agreement. It’s customary for the buyer to draft the initial purchase agreement. The purchase agreement will be drafted with the assistance of an attorney, and then buyer and seller will negotiate the final terms of the agreement. It’s recommended that you utilize an attorney who has experience with pharmacy transactions. Independent Rx also has strong relationships with attorneys experienced in pharmacy and can introduce you to them as well, if requested.
Once the purchase agreement is finalized, it’s time for the closing. The closing process includes signing all outstanding documents, taking inventory, reporting controlled substances to proper licensing bodies (e.g., the DEA, the state board), notifying employees of the purchase, and obtaining funding from the bank.
It‘s standard for the buyer and seller to agree upon a post-closing transition plan. This plan may include a few weeks for collaboration, introductions to key customers and referral sources, assistance learning the processes, etc. Transition periods vary widely depending on the experience of the buyer, needs of the seller, and the complexity of the business. Additionally, as the buyer you will need to work closely with the seller to settle outstanding accounts receivables, pro-rate bills, and obtain/transfer licenses and insurance contracts.