Happy New Year everyone! Wow, I can’t believe we are already a week into 2023 as I write this blog.
The holidays are almost a distant memory and we are well on our way to bringing you some really exciting content in 2023. Before we do that however, I want to reflect on 2022 and highlight some of the events that have driven us to create the new content we will be launching.
John and I had a big year interacting with our clients in 2022. We met with many who confirmed that it was indeed a big year for pharmacy as an industry, themselves as owners and their teams in general. The year also saw some really exhausted and frustrated owners struggle to retain pharmacists, dispensing technicians and retail staff alike. I can certainly say that we had many consider outright exits from the industry and in fact many did exit the industry as a result of the pressure they were under. We saw many consider what they should do to retain staff and what they should consider for succession planning.
What we also saw and I am super excited to report this; many current owners viewed the last few COVID impacted years as one of the best things that happened to the industry – whilst it certainly wasn’t a “fun” time, it did solidify the place of community pharmacy in the Australian healthcare space. As a result, we saw many pharmacies continue to enjoy good growth and this was reflected in the many valuations we did.
What we have also noticed with the industry in general is that in 2022, newly established owners, young pharmacists and first-time buyers are competing with larger “corporate” pharmacy groups. In a time when the values are significant and as is typical of our industry, there are always more buyers than there are supply of pharmacies.
For me personally, a common trend in 2022 that I noticed was a significant increase in enquiries into partnership and new ownership opportunities. In a typical year, I may only get 5-6 enquiries on this topic, however, in 2022 I had 3 times this number!
The enquiries came from all manner of pharmacists, with a wide range of experience levels but many of them first time venturers into business ownership. What was common amongst them is that they were all coming to see me at a point where they felt ready to become owners whether it be on their own or as a partner in an existing pharmacy.
In all of my interactions with these pharmacists, when asked what was driving them to this point, the most common answers were:
Realisation that community pharmacy was still a strong industry;
That the future of community pharmacy is looking very bright as we work toward full scope of practice;
They understood that the valuations of pharmacies were increasing and now was the time to try and get their foot in the door.
In the case of those offered partnership opportunities, the current owners wanted their best pharmacists to have ‘skin in the game’ as a retention/succession plan.
It is for this very reason that I am so excited to see this increase in ownership enquiries. It confirms that there is a place and opportunity for these “smaller” buying groups to get that first step on the ownership ladder.
What I did find however, is that not everyone who made an enquiry was ready to be able to compete adequately for every opportunity that presented itself.
I like to ensure that these pharmacists give themselves the best possible chance at being able to compete against the bigger players in the industry. To do this, these pharmacists need to be better prepared when they are at the negotiating table.
The points below apply to all buyers regardless of whether they end up owning the pharmacy alone or as a partner.
Have pre-approved finance or at the very least have an understanding of what your borrowing capacity is;
Ensure that your advisors (both legal, financing and accounting) are industry experts;
Have the right structures in place from the get go;
Understand the buying process;
Understand how the purchase contract works and what your obligations are;
Understand the value of the business you are purchasing and how it has been determined before you make an offer;
Understand the due diligence process; what does it involve, what level of enquiry can be undertaken;
Understand the geographic location of the pharmacy and how possible changes to location rules could impact if at all;
Ensure you undertake adequate investigations into the opportunities presented (not every opportunity will be the right one);
Seek assistance to understand the post settlement issues to streamline the operations from the start;
The points below apply to those buyers looking to purchase a percentage of a pharmacy:
Conduct a careful “due diligence” analysis of your prospective partner.
Where possible, take the opportunity to work with the prospective partner, this provides the ideal way to get to know this individual and how they work and deal with different situations, to determine whether this aligns with you.
If working with the partner is not an option, ensure you have frank and open discussions and meetings with them to confirm your compatibility. If they have had previous partners try to understand what the circumstances of the dissolution may have been.
Once you are comfortable with the outcomes, you should have the right suite of legal documents in place (Wills, Shareholder’s/Partnership Agreements) to protect yourself.
These legal documents discuss the following items amongst others:
Working obligations and conditions,
Options to buy additional partnership interests,
Method for determining purchase price on dissolution of the partnership and
Post- partnership restraints of trade.
Of the enquiries I had into ownership, I was able to assist and be part of the settlement of almost half of those transactions. I anticipate this enquiry trend to continue this year, and look forward to being able to assist many more potential owners.
If you would like to discuss partnership or ownership opportunities book an obligations free chat with me.