The right value?

What are the lessons from the recent pharmacy valuation season? John Thornett explains

Since 30 June 2018 valuation activity has certainly been very high.

We have seen activity pick up strongly over the last 4 months and it is looking like it will continue. As we are in the middle of the current CPA cycle demand for pharmacies is strong, particularly in the sub $3m market. We have seen several pharmacies being sold and the numbers of buyers coming to us for guidance and assistance has also grown.

Particularly noticeable is the demand from the current crop of pharmacy managers is still strong. Many are looking for their first opportunities to invest in pharmacy, whether that be a partnership stake or to own their own pharmacy themselves. We have been assisting an increasing number of first time buyers this year.

And whilst this is an exciting time for them it is also a nervous, stressful time as well. Therefore, it is important in our role to ensure we surround these first-time buyers with the pharmacy specialist advisers to ensure they are properly guided and advised. Particularly with the right lawyers, bank managers and finance brokers. Also noticeable is they are quite motivated, whilst at the same time very cautious and are making sure they ask the right questions. Prospective buyers want to be fully informed, so they can make the right decisions. It is good to see the fresh new ideas they have as well.

Also building the current strong demand is the existing pharmacy owners looking for another opportunity. This segment is also appearing more active lately as many are looking for their second or third pharmacy opportunities to grow. This also presents opportunities for young pharmacists as these owners are often looking for a working partner.

This is a great opportunity for these pharmacists as it gives them a chance to invest in pharmacy, often with great fresh new ideas, whilst at the same time receive guidance and mentoring from experienced owners who have learnt many valuable lessons along the way.

Often the segment most of these buyers are looking at is also the sub $3m market. Hence why that market is very strong, and many pharmacies are selling for premiums, especially where there are opportunities to grow the business.

Due to this strong demand it is important today’s buyers are ready to pounce when the opportunity presents itself. Make sure you speak to us early to get your legal structures set up ready to go. If you find a pharmacy you want to put an offer on, sometimes you cannot wait for companies and trusts to be set up. Existing owners may accept offers from other bidders in that time. So, get these structures set up early and ready to go.

Also speak with your bank managers and finance brokers to ensure you are aware of what your financial capabilities are. You need to know what your budgets are and the limits of your borrowing. If an opportunity presents itself which is well over your limits, then finding a partner may be a good option.

Most importantly, make sure you are clear on the opportunities and know where you can grow your new investment. It still surprises me how weak the answers are when I ask this question. Many will say they will service the customers better. And whilst this may be true, it is not enough and today’s market.

John Thornett is Director of Peak Strategies, pharmacy specialist accountants

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