Previously published in Pharmacy Business, April 2011
Finding a Pharmacy Business
You may be lucky enough to hear about a pharmacy business coming onto the market in your local area via your existing contacts but most sellers instruct specialist pharmacy agents who advertise and broker pharmacy sales. You should therefore consider registering as a buyer with agents marketing pharmacies in your preferred locations.
When considering a pharmacy business for purchase, you should familiarise yourself with the local area and the local competition. It is essential to check with the local PCT to establish whether any relocation or new contract applications have been made and to also make enquiries of the local doctors' surgeries to ensure they have no plans to relocate or retire as such changes could have a substantial impact on the turnover of the business for sale.
Funding
It is advisable to have secured an offer of funding in principle with your preferred lender (if requiring a mortgage to part-finance the purchase) when registering with sales agents since evidence of funding can be a material factor considered by sellers when weighing offers from purchasers. There are a number of specialist lenders active in the market both for first-time buyers and more established operators. You should however be mindful of the fact that lenders are unlikely to finance 100% of the purchase price.
Choosing a Team
You will need to select a team of advisers to deal with the purchase for you and you should ensure that whoever you select (lawyer included) is experienced in the pharmacy sector. You may wish to instruct an accountant to review the accounts and finances of the business and to advise on taxation matters. A surveyor may be required to carry out a structural survey of the property and, if leasehold, to advise on dilapidations (the cost involved in restoring the property to the standard required under the lease).
Your solicitor will co-ordinate the various different advisers and distribute relevant information to them for their review as and when it is received from the seller.
Purchase Vehicle
Consideration should also be given as to how you will own the business for example, as a sole trader, partnership, limited liability partnership or via a company. Again, your advisers will be able to assist with this and taxation may be a driving factor.
Structuring the Purchase
The purchase can either be structured as an asset purchase or, if the business is operated via a company, as a share purchase. Both have their advantages and disadvantages from a practical point of view, in terms of taxation and in terms of the level of liability you take on for the existing business. Your solicitor and other advisers will be able to give you guidance as to the most advantageous way to structure the purchase however the seller will also have their favoured method and depending on the bargaining position of the parties, may dictate the structure.
Generally speaking, an asset purchase is normally preferred by a buyer as only selected assets of the business are transferred (such as the NHS contract, goodwill, staff and stock) and the seller remains responsible for any liabilities previously incurred by the business. However there may be circumstances where a share purchase may be preferred.
An asset purchase does involve additional administrative steps compared to a share sale. For example, a change of ownership application will need to be made to the PCT, landlord consent may be required to transfer any lease of the property and there will be a requirement under employment law to inform (and in certain cases, consult with) employees regarding the transfer of their employment from the seller to the buyer.
In the case of a share purchase, there is greater continuity as the company will normally remain the operator of the business (and some of the administrative points mentioned above may not apply). That said, greater focus is spent on the warranties and indemnities in the sale agreement since these will form the buyer's protection against liability for the company's pre-sale liabilities.
Protecting the Business Post-Sale
In order to protect the business once you have purchased, it is common to seek to include in the sale agreement restrictions on the seller preventing them from soliciting key staff away from the business and competing with the business for a set period after the sale. Such restrictions will usually take the form of preventing the seller from owning or operating a pharmacy, making any applications for new NHS contracts or applying for relocation of existing contracts within a certain radius of the pharmacy for a certain period of time. Where the business has contracts with care homes the covenants will need to extend to protect those relationships. An exception is often made to allow the seller to work as a locum but care should be taken to ensure the restrictions limit the amount of time they can spend working as a locum in one place to avoid the situation where they become so well established so as to be able to compete with the business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.