This famous quote from ‘The Castle’ comes up surprisingly often in pharmacy business brokering, says Natalie Sirianni
To be honest, this is not usually quoted with exactly the same grammar or words used by Daryl Kerrigan in The Castle, but it is a phrase I’m often instructed as a business broker.
The main time I hear this is when we are selling smaller pharmacies and the purchaser asks the price that the vendor is wanting or our expectation of what price will be achieved for the sale. When I mention our expectation of price, many purchasers will inevitably respond with something along similar lines to this famous Australian quote.
Often it can be a negotiation tool from the purchaser to try and get the price down. But interestingly for many buyers who look at the figures for a smaller pharmacy and try to calculate the ‘value’, the numbers just don’t stack up! So what’s driving the pharmacy market at the smaller end of the market?
- Supply & Demand – at the end of the day, while pharmacy values are generally calculated using the capitalisation of Future Maintainable Earnings method, the actual sales price will be determined by the supply and demand market forces. Supply of pharmacies for sale, while improving, is generally relatively low compared to demand. The supply of smaller pharmacies on the market is even lower as there are relatively lower levels of these pharmacies in operation. The demand for smaller pharmacies is strong and increasing because of a number of factors. These factors are following.
- Price – the smaller pharmacies are generally lower priced and therefore will require less cash or equity to make the purchase. This makes them a much more affordable option for buyers, (particularly first-time buyers), compared to buying the average Australian pharmacy with a price of $2 to $3 million.
- Upside – there is often (in metropolitan areas) more upside associated with these smaller businesses through a number of methods including expansion, relocation, rebranding and an owner operator. Buyers will factor in the value of the business ‘in their hands’ which is often a lot higher than the current performance of the business.
- Increased Graduate Numbers – the recent increase in pharmacy graduates throughout Australia has meant that the number of buyers in the market is higher than it has ever been (or certainly in my time in pharmacy over the last 12 years!). Many of these buyers are young first-time buyers and the smaller end of the market is attractive due to points 2 and 3 above. This creates higher competition levels among buyers for the smaller pharmacies and pushes the price up.
- Can only be one buyer – at the end of the day, although we may have many offers received on a business, there can only be one successful buyer for a business and therefore only the highest offer prevails. For every one accepted offer and successful buyer, there can be up to 10 or so unsuccessful bidders. As such, the final price will represent the maximum price of the market.
These factors above, combined with the generally strong pharmacy market conditions that we are experiencing at the moment, are leading to solid prices being paid for pharmacy businesses at the smaller end of the market.
Natalie Sirianni, is from Attain Business Brokers. If you have any questions about the pharmacy market in your area, contact us today on 1300 ATTAIN (288 246).
If you are looking to buy and want to learn about the process and how you can achieve the successful pharmacy purchase of your dream pharmacy, Attain are sponsoring and I will be speaking at the upcoming Medici Capital Pharmacy Ownership Ready Conference in February 2018 on the Gold Coast. This is a must attend for all pharmacists looking to buy a pharmacy!
Click here for more information