Pharmacy Acquisition Finance in Georgia

By Brad MacLiver
Authorship and profile at Google


When a GA pharmacy or drug store is being sold, seldom does the buyer pay “out of pocket” cash for the acquisition. Even when cash is available, Georgia pharmacy acquisition strategies usually involve financing the transaction.
     
Typical acquisitions take 6-9 months to complete, so the pharmacy seller will need the buyer to provide some proof up front about their ability to close the transaction. Acquisitions will involve many hours of due diligence and negotiation, so the process should involve qualified parties.

Along with the buyer and seller the acquisition will involve attorneys, accountants, lenders, valuation companies, industry specialists, along with others. No one wants to pursue 6-9 months of work involving a variety of highly paid professionals without having some confidence of the Georgia pharmacy buyer’s ability to close the deal.

The process will begin with determining the value of the business. There are many companies that offer valuation services. However, pharmacies in Georgia are not ice cream stores. There are many aspects of valuing a pharmacy that are unique to the industry, so generic valuations or simple accounting formulas should not be used. An industry specialist should be used for valuing the GA pharmacies instead of a valuation company that has a broader spectrum.

In order to complete a valuation the selling company needs to provide up-to-date data. Lenders will not accept old data, or a sellers “gut feeling.” Lenders need to make a decision to finance based on sound and verifiable information.                

Structuring the transaction is extremely important. The seller of course wants as much money as possible and wants cash. The buyer needs to spread out the debt service and wants to have as little cash as possible invested in the acquisition.

Georgia Pharmacies and drug stores are in an industry where it is more difficult to obtain business loan due to the majority of the value in a pharmacy in GA is the customer files and not hard assets. Therefore, for the acquisition to be financed a lender will need a strong understanding of the industry and what, beyond the collateralized assets, the company offers to reduce the perceived risk.

Pharmacies in GA have typically been known as being stable, profit-generating businesses. Despite this, they may look worse to a buyer because they are usually in leased locations, and their furniture, fixtures, and computers will only provide $15-20,000 of collateral when the buyer could be requesting a million dollar loan. A lot a pharmacy's money is tied up in inventory, but lenders view their small pills as an easy asset to move out the door in the event of default. These circumstances cause many lenders to avoid loaning money to these traditional money-making businesses. To have a successful transaction, it requires a lender who understands the pharmacy industry.

Tips regarding GA pharmacy acquisitions and finance:

1. Attorneys and CPAs who have been representing the pharmacy seller for many years may see the transaction as putting themselves in a position of losing a client when the business is sold. Make sure they are working diligently on the transaction and are not slowing or undermining the process

2. Since Georgia pharmacy acquisitions involve 6-9 months of work to complete , all parties involved need to be aware of time tables. Much too often, items of importance end up sitting on the desk of someone that is outside of the control of the buyer or seller.

3. All financial information needs to be current. Over the lengthy process the data supplied to both the buyer and the lender will need to be updated on a continuous basis. Things can change drastically during a nine month period and the pharmacy seller in GA will need to continually prove the financial condition of the company.

When pursuing “pharmacy acquisition finance,” for the best chance of success, make sure the valuation company and the lender have expertise in that industry. Choose a company that has the pharmacy experience and expertise, and is a direct correspondent with lenders who understand Georgia pharmacy.

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Pharmacy Industry: Current Market Conditions in Georgia

By Brad MacLiver
Authorship and profile at Google


Currently there are a number of factors that are impacting the current market conditions of the U.S. pharmacy industry. These factors are affecting the pharmacy business valuations of pharmacies in GA and drug stores all across the U.S.

Local demographics:

The valuation process also includes local market conditions and local demographics. Smaller communities have less growth potential and with the declining profits a buyer will need to purchase at a lower value because they will have to service the debt from a business loan and still try to make a living. The same is true for communities that have lost population due to economic conditions, or have a high rate of unemployment. Fewer people, or fewer customers with the ability to purchase, will mean fewer sales and less chance of any substantial improvement in the near term. This results in a lower pharmacy business value.

Pharmacists Shortage in Georgia:

Pharmacies across the country have had difficulties in finding pharmacists.  This shortage of pharmacists in GA not only affects employee opportunities it also affects the number of potential independent buyers. 

Fewer Buyers:

There are also fewer corporate buyers. Some of the largest pharmacy chains have been purchased and consolidated in the pharmacy industry roll up in Georgia. Many smaller chains have run into financial difficulties and have stopped their expansion. It is more difficult to drive a price higher when there are fewer willing, or capable, to purchase.

Current Market Conditions Requires Industry Roll-up:

The consolidation of the pharmacy industry is required to get more traffic into a single store.  Due to simple economics, when any business has a reduction in profits they are less attractive to a buyer and Georgia pharmacy business values drop. There are many factors contributing to the downward pressure of pharmacy values and there is not any expectation of a turn around. Pharmacy owners should not be fooled by inexperienced Brokers claiming grand outcomes and over stating pharmacy business values not based on realistic market conditions.

With the consolidation of the pharmacy industry that has been happening for several years, many new brokers have entered the market to broker pharmacy acquisitions. Most brokers do not have pharmacy related experience, nor do they use current market conditions when they value a pharmacy. Most are using simple accounting formulas that hold no sound reasoning for the value when faced with current Georgia pharmacy market conditions. Due to this many brokers are valuing pharmacies 2 to 3 times more than what the market is really willing to pay. Any inexperienced person can quote a high value to capture a listing.  However, that does not mean the over inflated asking price is what the business will actually sell for.

Mail Order:

Some insurance companies have started designating a significant number of pharmacy patients as “long-term medications”, requiring that they only purchase the medications from mail order pharmacy companies who provide products at lower prices. Local pharmacies are impacted by not only missing out on prescription sales, but front-end sales will also decline because those customers are not entering the store. Pharmacy mail order sales have currently eclipsed sales from independent retail Georgia pharmacies.

Consult a firm that provides pharmacy business valuations that are based on real market conditions.  These companies do not use a simple formula for calculating the value of a pharmacy. Complex methods are used to derive the value of a Georgia pharmacy.

It is wisest to consult a company that specializes in pharmacy along with extensive and current industry data.  Choose pharmacy specialists who have worked in the pharmacy industry in Georgia long enough to have thorough pharmacy experience as well as an excellent reputation.  Companies with good credentials possess large amounts of national data and the largest financial institutions, national chain pharmacies, regional pharmacy chains, independently owned drug stores, and pharmacy equity investment groups rely on the services of companies fitting this description.

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