Ownership future looks bright

Frank Sirianni.
Frank Sirianni.

Opportunities to become pharmacy owners are still abundant, delegates to the Medici Capital pharmacy ownership conference heard

Frank Sirianni, managing director of Medici Capital, said that statistics showed more than 90% of people who started the journey towards buying a pharmacy ultimately did so.

“The reality is that there’s still lots of opportunities out there,” he said.

Mr Sirianni advised that the best strategy is not to buy a great pharmacy at a good price, as it’s extremely difficult to improve the performance of a pharmacy that is already outstanding: instead, he told delegates to try to purchase a good pharmacy at a great price and then work on building the business.

Natalie Sirianni, director of Attain Business Brokers, said that upon observing that first home buyer rates had dropped to just 18% of borrowers, she went through Attain figures to examine how opportunities looked for first-time pharmacy buyers.

She told the conference that the news was good for those yet to purchase their first business: about a third of pharmacy buyers are first-time pharmacy buyers.

“There’s plenty of opportunities out there, and plenty of first time buyers as well,” she said.

Delegates heard from a panel of experts who addressed a range of opportunities and threats for those buying into pharmacy, as well as existing owners.

One of the threats discussed was Amazon and online pharmacy, and PDL deputy chair Gilbert Yeates warned that should the online giant get its delivery system right in Australia, it could be a significant challenger for some of pharmacy’s business.

Historically online retail has been a challenge due to geographical factors which create a wait time between ordering and delivery, and online pharmacies are still a very small part of the sector. However, they could become a much bigger problem for bricks-and-mortar pharmacies in the near future.

“At this moment the threat is not there but a lot of the dispensing market have been technologically illiterate or slow adaptors of technology, and that’s going to change,” Mr Yeates said. “And if the delivery paradigm shifts, we’ve got a very small window.”

Mr Yeates also explained how pharmacy owners not only have professional responsibilities pertaining to their own work, but take on an added layer of responsibility for employees and staff as well.

Banks still have a “very good” appetite for pharmacies, but several presenters impressed upon delegates the importance of paying down debt while interest rates are so low.

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Medici Capital ownership conference delegates

“Money’s never been this cheap,” Pharmacy Guild Queensland Branch president Trent Twomey said underlining the importance of paying down principal as well as interest, protecting against the possibility of changes to a pharmacy’s rent in particular.

Pharmacy Alliance’s Darren Dye told delegates about the drivers of consumer behaviour, namely the importance of convenience.

“The reason people aren’t purchasing in a pharmacy are simple: it’s either price or range,” he said. “The number-one consumer driver in the world is convenience.”

A big part of convenience is range, he said, saying that one of the biggest opportunities in pharmacy is the ability to “activate and excite” people by offering products and services they want.

Delegates also heard from Sigma Healthcare’s National Business Acquisition Manager, Peter Lane, who said that there have been more pharmacy failures in the past five years than in the past 15 years.

But “I’d say there’s probably more bad pharmacies going out of business and we’re starting to get the better operators coming through,” he said.

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Medici Capital ownership conference delegates

As well as participating in wide-ranging discussions of this top-down overview of the sector, aspiring owners were taken through a series of nuts-and-bolts information sessions about the process of purchasing a pharmacy.

Frank Sirianni discussed the three economic laws of pharmacy: he explained that there is no such thing as an average pharmacy, pointing out that industry turnover figures are skewed upwards by several very large players.

The second law pertains to declining gross margins generally speaking, with an anomaly at the moment as these climb following the end of generics deals; while the third law has been broken.

“Increased reliance on prescriptions” has been altered to “strong reliance,” as the dispensary/retail split has shifted.

Christian Sirianni, head of valuations, took delegates through the process of examining a pharmacy’s financial data, from ascertaining whether the wages data and other outgoings were realistic, through to calculating the value of goodwill a new buyer was purchasing, and how these figures could change dramatically with only minor changes or errors.

Sarah Stoddart, principal lawyer at Stoddart Legal, went through numerous legal aspects of purchasing a pharmacy, including how employment law affected a purchase and whether staff could be let go, and who was liable for any redundancies.

And Natalie Sirianni advised on dealing with brokers and gave prospective buyers nine rules of the game:

  1. Know the essential steps in the buying process.
  2. Buy the future.
  3. Buy a good business and make it a greater one.
  4. Work to a plan.
  5. Focus on profitability.
  6. Do what you do best: employ good people to manage the rest.
  7. Keep it simple and use technology.
  8. Focus on improvements; recognise strengths and avoid negatives.
  9. Know what the business is worth to you.

More than 40 delegates attended the conference, which was held at the QT Hotel at Surfers Paradise.

It was sponsored by AJP, PDL, Sigma Healthcare, Attain, Chempro Chemists, Alliance Pharmacy, Stoddart Legal, Westpac, RSM and the Pharmacy Guild of Australia.

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  1. Karalyn Huxhagen

    was a very interesting insight into how to address the hurdles of buying a pharmacy. The snapshot presentations gave a good overview of how to plan for ownership . Like buying anything of considerable value you need to wait for the right opportunity and do your due diligence using those who know the ropes and who can provide non biased advice. Was pleasing to hear that statistically we are not in the gloom recession that we were facing a short time ago.

  2. Ex-Pharmacist

    This is akin to a real estate agent saying the “market is booming!”.

    • PharmOwner

      Exactly, pharmacy brokers have a vested interest in ensuring a continuing supply of suckers, oops, I mean buyers. It’s not until you get into the business that you realise exactly how much you’ve been ripped off. Due diligence is not worth a cracker and will not protect you from unscrupulous sellers.

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