Selling a pharmacy is never easy—especially when you've spent years building it, earning a strong reputation in the local community, and serving patients with dedication.
Regardless of your reasons for selling, preparation is key. A well-prepared sale not only maximises the value of your pharmacy but also streamlines the process for potential buyers, who will conduct extensive due diligence before committing.
This guide outlines key steps to help ensure a smooth and successful sale.
Valuing Your Pharmacy
Before listing your pharmacy for sale, understanding its market value is crucial.
A pharmacy's valuation typically depends on multiple factors, including:
- A multiple of profits or turnover (as per the most recent annual accounts)
- The number of items dispensed per month
- The average item value
Pharmacy specialist agents can provide accurate valuations and facilitate sales. Alternatively, if you plan to sell privately, your accountant can assist in determining a fair valuation.
Choosing the Right Sale Structure: Asset Sale vs. Share Sale
Asset Sale
If you operate your pharmacy as a sole trader or partnership, it will be sold as an asset sale. This allows the buyer to select which pharmacy assets they wish to purchase, with the price agreed accordingly. It is more appropriate for a buyer to cherry pick specific assets it wants to take on.
An asset sale typically includes:
- Goodwill
- Stock and inventory
- Equipment
- Patient Medication Record (PMR) system /EPOS
- Supplier contracts
In an asset sale when selling your pharmacy, the seller retains any cash in the business and any excluded assets. While the buyer purchases the assets, they do not inherit the seller's liabilities—meaning the seller remains responsible for any outstanding debts incurred before the sale date.
One key consideration in pharmacy sales is the NHS contract transfer, which depends on various factors related to law and to how the pharmacy business is sold. The National Health Service (Pharmaceutical and Local Pharmaceutical Services Regulations 2013) and the General Pharmaceutical Council (GHPC) regulations require a Change of Ownership application.
Depending on the type of transaction, a change of ownership under NHS Regulations is necessary when the legal identity of the one selling a pharmacy business changes. Two common scenarios in the pharmacy market that require an application for ownership transfer include:
- When an individual is selling their pharmacy business to a limited company registered at Companies House (where the individual is a shareholder). The incoming prospective buyer—the newco—must submit an application pursuant to regulation 26 of the NHS Regulations. Additionally, the newco must apply to the GHPC to notify them of a change in ownership for premises practice registration and the transfer of the property.
- When Company A buys shares in Company B (a pharmacy business) and dissolves Company B, allowing Company A to continue operating the pharmacy. In this case, the legal identity of the pharmacy business changes, requiring an ownership transfer application to NHS England.
As a general rule, unless there is good cause for delay, NHS England must determine the Change of Ownership application as soon as practicable, typically within 30 days of receiving all required transaction documents and advice, including fitness to practice assessments.
Beyond regulatory approvals, pharmacy sales often involve complex property considerations. If the pharmacy premises are leased rather than owned outright, landlord consent is usually required for a lease transfer, which can cause delays. As a result, the entire transfer process can take anywhere from 3 to 6 months or longer.
Additionally, sellers should consider the valuation of intellectual property linked to the pharmacy business, as this can impact the market value of the transaction. Proper planning and organisation of transaction documents can help facilitate a smoother sale process.
Share Sale
If your pharmacy is owned through a company, you can either sell the company's assets or the company itself. Selling the company allows for a clean break and can often be a faster process.
In a share sale, where a buyer company – the newco – takes full ownership of the legal entity operating the pharmacy – the seller co, including all assets, liabilities, existing tax obligations and legal commitments, all that has happened is that the issued share capital is now in new hands. Therefore, no change of ownership application is needed. The NHS contract is held within the company, making the process quicker. In terms of the NHS and GHPC regulations where the directors of seller co have also changed, then within 30 days of the change of director, NHS England (via the local NHS team) must be duly notified using their template notification forms. The buyer/newco will have to submit fitness to practise information about the directors' and any new superintendent pharmacist acting and replacing those present with the seller co.
An advantage of a share sale, when considering physical property aspects are that if the seller co owns the freehold, there should be a straightforward property transfer which our property team can deal with. Additionally, if the pharmacy lease is in the company's name, there's no need for landlord approval, as the lease remains unchanged.
However, one drawback of a share sale is that stock and excess cash payments are delayed. Unlike an asset sale—where stock is usually paid for within a month—share sales involve a completion accounts exercise, which can take 3–6 months. Buyers and sellers can negotiate advance payments to mitigate delays.
Demystifying the Legal Process
Once the pharmacy has been valued, the sale structure determined, a buyer secured, and any exclusivity deposits paid, the legal process begins.
There are 3 – 4 main aspects that comprise the legal process in a pharmacy sale, which includes the (1) corporate / pharmacy side, (2) property, (3) buyer's lending and seller's existing lending and (4) if required, the NHS change of ownership process.
The commercial / pharmacy aspect in the main is dealt with by the sale and purchase agreement and other ancillary documents to regulate how the agreement takes shape. The main ancillary document with the sale and purchase agreement is usually the disclosure letter. There are also ancillary documents like share transfers and/or board minutes that will be applicable to a share sale rather than an asset sale.
Disclosure is the seller's opportunity to make 'disclosures' against the warranties which the buyer will require the seller to give. If a seller makes inadequate disclosures, it may face breach of warranty claims, which could allow the buyer to recoup some or even all the purchase price. A full and proper disclosure exercise is in both parties' interests. For the seller, it may provide protection against a breach of warranty claim or at least may provide a successful defence to such a claim. For the buyer, it supplements the due diligence exercise in giving the buyer the fullest picture of the target company or business. The disclosure letter is prepared by the seller's solicitors. The golden rule in preparing the Disclosure Letter is to ensure that everything that is relevant is disclosed in as much detail as possible, even if the buyer is already aware of a particular matter. If the seller has any doubts as to whether something should be included, the prudent approach is to include it.
On the buyside, a buyer should require the seller to disclose all possible issues as early as possible within the process. They should ensure the disclosures are clear and unambiguous, and a buyer will want to negotiate and deal with any problems at the negotiation stage, as they may wish to negotiate the price, and any indemnities given, further still whether to finalise and proceed.
The disclosure letter forms part of the sale agreement and as negotiated sets with matters such as price and payment provisions, and restrictive covenants, warranties and indemnities that are required from sellers.
Sale and purchase agreements generally place several obligations and conditions on sellers to ensure that a buyer is not left with hidden liabilities. It is therefore important to ensure that sellers disclose as much about the pharmacy as possible to avoid the buyer attempting to make claims after completion for breach of warranties. Within the due diligence process, which involves the buyer's requesting and sellers providing information about the pharmacy to allow the buyer to assess any risks some key areas for review are:
- Accounts, FP34s and financial information
- Staff information and contracts
- Key contracts such as supplier agreements for wholesalers, equipment (e.g., PMR)
- Insurance policies
- Compliance certificates such as GPhC registration, ICO registration and confirmation that the pharmacy is included on the NHS Pharmaceutical List
- Health and safety documentation such as fire risk assessments, asbestos surveys, gas safety certificates, electrical installation certificates
The property aspect involves providing evidence to the buyer of the pharmacy's entitlement to operate in its premises, by providing a copy of the lease (if the freehold is not owned by the sellers) and title registers. The buyer also raises a number of property enquiries to ask about rent reviews, any issues with the property's condition or with the landlord or any neighbours, and confirmation that the sellers have complied with planning and building regulation requirements when operating the pharmacy. If the sellers own the freehold and wish to grant a lease to the new pharmacy owner, then we can help prepare the lease and advise on the lease negotiations during the process via our property and real estate departments.
If the lease is with a third-party landlord, then the parties often enter into a licence to assign with the landlord to transfer the remaining term of the lease to the buyer.
It is important to be aware that the property aspect can be made difficult by third party landlord who may require the sellers to remain as guarantors under the lease or could ask for a large rent deposit from the buyer which could make budgeting for the transaction difficult. The buyer will also likely require a new long-term lease for the pharmacy – 15 years – is a common requirement of most buyers' lenders. Prudent sellers therefore enter into a new lease with the landlord, prior to the pharmacy coming to market, with a 15–20-year term in place, so that during the sale process, the buyer and their funders' lease requirements can be more quickly satisfied by the existence of a lease for the required minimum term.
The lending process from the sellers' perspective involves ensuring that the sellers' existing lenders are aware of the sale. We can help with redemption of the loan and discharging any existing security against the pharmacy or the property for completion. The lending process from the buyer's perspective involves a number of due diligence queries that the buyer's lender will have, such as the provision of a fire risk assessment, asbestos survey, EPC, proof of ownership of the NHS Contract (to name a few). It is important for sellers to be aware of the buyer's lending requirements and help with satisfying these as the buyer's lending is critical to fund the transaction and reaching completion.
The NHS change of ownership process is as discussed earlier in the article, and in summary, there is no pre-completion approvals required in a company sale. However, in an asset sale, the buyer is required to make an application for the change of ownership of the NHS Contract which can take 3 – 6 months (or more).
Employee Transfers & Legal Obligations
Under TUPE (Transfer of Undertakings Protection of Employment) Regulations 2006, employees' rights are safeguarded during business transfers. This means:
- Employees retain their jobs and contractual terms
- Sellers must provide written employment details to the buyer
- Staff must be informed about the sale before completion
- Buyers must notify employees of any planned contractual changes
- Employees can object to the transfer without providing a reason
Handling employee transitions correctly is vital to ensuring compliance and maintaining a positive workplace atmosphere. We have an employment team that can carefully consider existing employment rights and documentation of the business, examine the employment contracts and best advice how any notification and governance of staff is agreed and incorporated with the sale transaction.
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.
