What makes a pharmacy attractive to buyers, asks Natalie Sirianni of Attain Business Brokers?
The pharmacy market is currently very active with the number of pharmacy business transactions increasing this year. Overall we are witnessing strong sales results for many pharmacies.
However, each business is different and while the market is happy to pay a premium for certain sites, some businesses are taking longer to sell. So
While every business may be attractive to a particular buyer, for a specific purpose, the following are some general characteristics that are currently in high demand from buyers.
Pharmacies are valued using the Capitalisation of Future Maintainable Earnings valuation method. This method assumes that the profit level stays constant into perpetuity. Therefore the model does not take into account the growth levels of a particular pharmacy. As such, if a pharmacy is achieving growth in sales, or more importantly profit, then it is likely to be very attractive to the market and achieve a good sales result. Conversely, any pharmacy with sales decline is likely to warrant a number of questions and possibly concern from buyers.
- Transferability of Income
Transferability of income is a key factor as to why pharmacies are valued at the level they are. The reason for this is that the income is usually able to transfer relatively well to the new owner. Therefore the goodwill that is paid for will transfer across to the new owner and provide them with consistent returns. One way of identifying the transferability of income for a pharmacy is to look for a pharmacy with relatively low reliance on the owner. These businesses are currently in high demand.
- Low Rent
Rent is a key factor that buyers are paying close attention to in the market. Buyers are very keen for low rent sites. When considering rent, buyers will also review the length of the lease term, outgoings, rates and method of rental review. Pharmacies with rent below 4% or 5% of turnover are currently in high demand.
- Low Competition
Pharmacies with relatively low competition are also quite attractive in the current market. There are a number of buyers looking for pharmacies in one or two pharmacy towns.
- High Profit
There is also strong demand for pharmacies with high levels of profitability. High levels of profit show that the pharmacy is currently performing well and also provides a level of ‘buffer’ should something go wrong or in case of an unforseen threat. Buyers will be looking for high profit levels (both in percentage and dollar terms).
These are general characteristics that are in high demand in the pharmacy market. How do they compare to your pharmacy?
Please note, it is important to remember that these are general trends and may differ at a particular site.
If you would like to discuss the market or your pharmacy in particular, call Natalie on 1300 ATTAIN (288 246). I look forward to discussing with you further!