What are the 8 factors you should consider when making an offer for a pharmacy? Natalie Sirianni explains
Buying a pharmacy is usually a very exciting time in your pharmacy career, but it can also often be quite a long process. Given the limited supply of pharmacies on the market, the search to find that right business can sometimes take time.
So, when you do find that dream pharmacy that suits you, it is important that you move quickly to ensure you do not miss out!
A key part of the process is making an offer and (hopefully!) having your offer accepted by the vendor. Following are my key points to consider and include as part of your offer on a pharmacy business:
- Purchase Price
Obviously the price you are willing to pay is a critical part of your offer and also a critical factor to the vendor. Most vendors would consider this to be the most important part of the offer. However, there are other points to consider and we have seen cases where a vendor decides to accept a lower priced offer due to other conditions or factors. No doubt your offer price or the business will be based on many factors including your assessment of the business, opportunities, risks, market factors etc. It should also take into account your ability to finance the transaction.
- Stock Estimate
As part of your offer, it is very important to specify the amount of stock included in your offer price. This will be an estimate, usually based on the current stock levels in the pharmacy and this estimate is likely to be included in the Disclosure Document or Information Memorandum provided to you by the Business Broker. It is important to make sure that the stock included in your price is a fair and accurate representation of the current stock that is actually in the pharmacy. It is also important to consider timing factors, such as extra Christmas stock if you are settling close to Christmas. The remainder of the price will consist of Goodwill and Fixtures & Fittings. And remember, the actual price that you pay for stock will be based on the stocktake the night before settlement.
- Deposit Amount
This is not always required to be included in your offer, but if you put it in you will show the vendor and the business broker that you have the initial deposit ready to go and are ready to move quickly. Our standard deposit amount is 5% of the total price of the business. On larger businesses, this can sometimes be broken up into two payments (one at offer acceptance and one at Contract exchange).
- Finance Condition
Most pharmacy business offers have four standard conditions that the offer is subject to. These are Finance, Due Diligence, Lease Transfer and Medicare & Pharmacy Authority Approval. If you are able to remove the finance condition on your offer, that would make your offer more attractive to the vendor as it provides them with more certainty that the transaction will go through. As such, if you are confident of finance going through, removing the finance clause is often a strategy to make your offer more attractive to the vendor. But remember, it does add more risk for you.
- Due Diligence Condition
Most pharmacy transactions will be subject to Due Diligence. The Due Diligence process can take time to complete. If you are able to get your Due Diligence completed quickly and therefore do a shorter period for your Due Diligence clause, this may also be attractive to some vendors. If you are going to include a Due Diligence timeframe as part of your offer, make sure you speak to your accountant to ensure the timeframe you have included is reasonable and possible for them to achieve.
- Other Conditions
As mentioned earlier, the main two other conditions that are included in the sale of pharmacy businesses are Lease Transfer and Medicare & Pharmacy Authority Approval. However, sometimes there are other conditions that you may want to include. For example:
- First Right of Refusal on the Pharmacy Property – if the property is owned by the vendor of the pharmacy
- The Purchaser will offer Employment to all current staff – this may be attractive to vendors as they often want to ensure ongoing employment for their staff members
- Timeframe to Settlement
The timeframe to settlement can also be a key factor that a vendor will review when assessing offers. Often the sooner the better, as it will show commitment from you as the purchaser. Also, usually once the vendor has made the decision to sell they do not want it to drag out too long. However, having said this, some vendors would prefer a longer settlement for personal reasons. It is important to speak to the Business Broker about what the vendor’s preferences would be in this regard.
- Offer Expiry
Another factor to consider is how long your offer is valid for. Some buyers put timeframes or expiry dates/times on their offers, however some do not. Having an expiry for the offer can be a good to ensure there is some sort of deadline or finality to it. But, if you are going to do this, you have to be prepared to walk away if your offer is not accepted by the specified time. Also, it is important to be reasonable with the timeframe of your offer so that you don’t disadvantage yourself.
These are my key points to consider and include as part of your offer on a pharmacy business. Please note, there may be more factors that are specific to the business that you are looking at that you would also want to include.
Also, it is important to remember that each vendor is different, so it will be helpful to ask the Business Broker, “What is the vendor looking for in terms of a sale? What would make an offer more attractive to the vendor?”
I wish you great success for your pursuit of buying a pharmacy! If you have any questions about the process, please feel free to contact me on 1300 ATTAIN (288 246).