Growing through Acquisition: What to Consider
In the last issue of Independent Insights, Bob Graul, McKesson’s national vice president of RxOwnership, described some of the initial steps owners should take when considering selling their business.
But for every seller of a community pharmacy, there is also a buyer. This time we are going to flip the perspective and focus on those of you who are looking to acquire an independent pharmacy. For many pharmacy owners, the path to growth is as likely to include an acquisition as opening a completely new store. Bob points out, “While there is a large number of first-time buyers in the market, over 50% of all transactions are to existing store owners.”
Some of Bob’s advice for selling a business — finding sound legal counsel, retaining the services of an accounting professional and taking the time to write a business plan — is equally important for buyers as well. However, because acquiring a business carries its own unique opportunities and risks, Bob has some additional advice for those considering an acquisition of an existing pharmacy:
- Understand the financial requirements. While each deal is unique, and there are always exceptions to the rule, in Bob’s experience the average purchase price for an independent pharmacy is in the range of $1.2 – $1.4 million. Typically buyers are required to pay 15% to 20% of the purchase price in cash at closing. This means that to make an acquisition a buyer will usually need at least $200,000 in cash and will need good credit in order to secure financing.
- Establish clear criteria for a deal. A transaction of this type can be an exciting, emotional process. Once the process gets moving, a strong desire can develop on both sides to get the deal done. This momentum can be both good and bad for a buyer.To prevent getting carried away in the excitement of the moment, it is important to have a clearly established set of acquisition criteria, which are developed before becoming immersed in the heat of the moment. Then, continually reference these criteria throughout the transaction process to make sure the deal still makes sense. For example, you want to make sure you will be able to pay down debt, retain key employees and achieve a certain minimum income. A clear set of criteria prevents losing track of these essential factors as momentum builds.
- Buy the right business. Once you decide to buy an independent pharmacy, have established the financial wherewithal to get the deal done and developed your criteria, the final step is finding the right deal for you personally. This is the most subjective part of the process, but it is extremely important.You are not buying a generic “independent pharmacy” but a specific business at a specific location with specific customers and employees, and a specific culture and history. Thinking about how all that will change when the former owner exits and you walk through the door — and how you will meet those challenges — is critical to the success of the acquisition.
Buying an independent pharmacy can be one of the most rewarding experiences any entrepreneurially minded pharmacist/business owner will ever undertake. Being well prepared will dramatically improve your chances of making this acquisition a great success.