5 key steps to sell your pharmacy

Selling a pharmacy can be a complicated, even daunting process. Legalese and accounting terms can get thrown around like spaghetti in a food fight, and even the most business-savvy pharmacist-owners can sometimes feel like they are caught in a tempest over which they have little control.

It can pay huge financial and emotional dividends if you take some time beforehand to understand the transaction process. Doing so will reduce the confusion – and fear – of selling. And at least you will know what you are facing when you do decide to sell.

We have reduced the process to five basic steps:

Step 1: Valuation

At the end of the day, selling a business means negotiating with a prospective buyer over the value of your business. Needless to say, it helps a lot to know what that value is. Business owners often use rules-of-thumb (like earnings multiples they’ve “heard about”) to guess at value, but nothing is as good as an experience- and data-based valuation of your pharmacy’s market value performed by a qualified expert. With that valuation in hand, you can enter negotiations with confidence.

Step 2:  Preparation

The selling process goes a lot more smoothly if you have your business’s house in order. A buyer will want to pore over every detail of your pharmacy as part of their due diligence, so make sure your legal and financial records are in good order. As much as possible, you want to show potential buyers that you are professional and transparent, and you don’t want to delay a sale because you can’t produce good paperwork promptly. Wasted time kills deals.

This step also involves preparing marketing materials. The most important is the CIM, or “confidential information memorandum.” Basically, it gives potential buyers all the relevant information about your pharmacy they will need to make an informed decision – details on finances, operations, staff and services, your market’s demographics and other pertinent facts about the community in which you operate. Including key performance indicators like prescription volume, margins and commercial terms is also a good idea, as well as a “blue sky” section that speaks to the business’s potential. Finally, the CIM should provide guidance on your normalized profitability.

Also in this phase, you should work with your transaction advisor to prepare a list of qualified buyers. And your legal team should draft a non-disclosure agreement (NDA) for potential suitors.

Internally, you will want to consult your accounting and legal advisors to determine your preferred sale structure, including whether you want an asset or a share sale. Doing this early on will allow you to implement any necessary changes to corporate structure, assets and accounting practices to facilitate the kind of sale you want.

Step 3: Marketing

When you finally take your pharmacy to market, a skilled and experienced transaction advisor can be worth their weight in gold. They will help you reach out to qualified buyers and assess opportunities. If your store is desirable, you can expect plenty of suitors, and the right advisor can help you separate the wheat from the chaff. Remember that weighing up a buyer is not only about how much they are prepared to pay. Whoever ultimately takes over your store, that person should be someone with whom you are comfortable, who you feel shares your values, and who won’t turn out to be an embarrassment to you and your legacy in the community. We have seen far too many former pharmacist-owners end up bitter and disappointed because they sold to the wrong buyer.

Step 4: Due diligence and definitive agreement

After the potential buyer makes an offer (usually in the form of a Letter of Intent) that you find acceptable, two processes run in parallel.

The first is confirmatory due diligence. It is a deep dive, undertaken by the buyer, into your business. The buyer will be checking to ensure that everything you have represented about the pharmacy so far is true and accurate. They will review source documentation and request updates as needed; some will visit the store. And sometimes, especially in the case of a corporate buyer, they will conduct a “quality of earnings” review.

The second part of this step is the definitive purchase agreement, or DPA. It is a legal document that defines the transaction terms and supplants the Letter of Intent. The DPA gets into the specifics of the deal, such as price, legal descriptions, representations and warranties. It will also stipulate whether the transaction is an asset or a share sale. (Most sellers prefer the latter, for reasons we will explain in another article.)

Usually, the DPA is the last step before the deal closes. It has to be executed by both parties, so make sure your definitive purchase agreement is detailed, accurate and clear. That will help avoid disputes and misunderstandings later on.

Step 5: Closing and Post-Closing

Your work isn’t done yet! Once the paperwork is signed and you’ve got your money, you will likely have to provide support to the buyer while transitioning ownership; many DPAs require the former owner to continue working for a certain period. Also, in this phase closing financial statements are completed, and they often entail a post-closing adjustment to the purchase price. If your deal includes holdbacks and earn-outs, those will still need to be settled, too.

If all this sounds like a lot of work, that’s because it is! Unless you are a business transaction polymath, you will need help. So, it makes sense to assemble your transition team, including accounting, legal, tax and transaction advisors, well before you sell. The guidance of a trusted and experienced team of advisors can be immeasurably helpful in reducing the stress and friction that inevitably come with such a significant personal and financial event.

And finally, remember this: there is absolutely no substitute for sound preparation. The steps we’ve outlined here should be done in order. Don’t skip over any of them and expect to have a successful sale. By preparing for and following the “pharmacy sale five-step,” you can avoid a lot of hassle and headache down the road.