Pharmacy Owner’s Guide
To Exit Strategies
Presented by:
Guy W. Stillwell, R.Ph.
Pharmacy Consulting Associates, Inc.
PCA
www.pcapartners.com
Disclosures
 Stock Holder: PCA-Pharmacy Consulting
Associates, Inc. / President
Program Outline
 Market Trends
 Preparing To Market
Your Pharmacy
 Timing Considerations
 Professional Resources
 Market Valuation
 Owner Financing/
 Potential Buyers
Junior Partnership
 The Selling Process
Market Trends
Is Independent Pharmacy Strong Again?
 1985-1998 : Independent Pharmacy decreased by
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8,000 units
1999-2005 : Independent Pharmacy decreased by
1,700 units
2004-2006 : Independent Pharmacy decreased by
900 units
2007-2009: Independent Pharmacy decreased by
770 units
The strength of Independent Ownership
Market Trends
Transfer of Ownership
 Pharmacists are becoming more interested in
ownership.
 Chain file buys are no longer your only
option.
 Metro community pharmacy owners are
challenged by not having full access to
buyers.
 Are smaller community pharmacies able to
attract young healthcare professionals?
Market Trends
Where are we today?
 Independent Pharmacy Projections for 2010
 Metro vs. Rural Trends
 The Future
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Pharmacy Market Values
Timing Considerations
The 5-10 Year Planning Process
 Potential Buyers
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Junior Partner
Key Employee
 Lease Terms
 Corporate Structure
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C-Corp
S-Corp
Timing Considerations
The 3-5 Year Planning Process
 Financial Metrics
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Balance Sheet
P&L
Cash Flow
 Market Valuation
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Industry Valuation Metrics
Cash Flow Analysis
Buyer’s ROIC/ROCC
Obtain Expert Advice
Timing Considerations
The 3-5 Year Planning Process
Operational Factors Affecting Market Value
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Private Charging
Unit Dose Packaging
Delivery Service
Niche Services
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Compounding
DME
Specialty Pharmacy
Nursing Home
Timing Considerations
The One Year Planning Process
 Market Valuation
 Identify Buyers
 Exception: JP Program needs to be
established 5-10 years prior to transfer date
 Obtain Expert Advice
 Accountant
 Legal Counsel
 Business Consultant specializing in Pharmacy
acquisitions and mergers (The buy/sell
process)
The Market Valuation
What is My Pharmacy Worth?
 Industry Metrics
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$/Rx plus Inventory
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Multiple of Net Income
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Range: $0-$30/Rx
Range: 0-5x Net Income
% of Sales plus Inventory
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Range: 0%-40% of Total Sales
The Market Valuation
What is My Pharmacy Worth?
 Why the Metrics Do Not Work
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Ranges are Variable
Standard Metrics are Unreliable
Lack Specific Market and Pharmacy Data
 How to Understand the Metric Values for
Your Pharmacy
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Know the Market
Engage Expert Pharmacy Appraisal
Consultant
The Market Valuation
What is My Pharmacy Worth?
 Buyer’s Perspective
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Continuation of Business
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Cash Flow
ROIC/ROCC
Financing
File Purchase
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Retention
Operational Blending
ROIC
Potential Buyers
Identify all Buyers in the Market
 Key Employees
 Local Independents
 Regional Independents
 Independent Pharmacy Investors
 Chain Pharmacies
 Specialty Pharmacy Operations
Potential Buyers
Engaging All Your Buyer Resources
 Explore all of your options
 Strategically weigh the pros and cons

Independent

Chains
Preparing To Market Your Pharmacy
Protecting your Business and Maximizing Value
 Confidentiality and Non-Disclosure
Agreements
 Providing Documentation-The Presentation
 Notification of Staff, Family, and Friends
 Engage Expert Assistance
Professional Resources
 Legal Counsel
 Accountant
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Limited Knowledge Regarding Pharmacies
 Business Consultant
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Expert on Pharmacy Valuation
Increases Potential Buyer Pool
Minimizes Your Worry – Manage Entire
Process
Maximizes Your Value – Expert Negotiations
The Selling Process
Critical Steps in Maximizing Your Value
 Strategically Provide Documentation based
on Buyer’s Due Diligence
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Only provide exactly what is requested
Obtain LOI prior to full disclosure
Understand Buyer’s operation, needs, and
expectations
Understand Buyer’s financial position
Does Buyer’s financial position facilitate sale
The Selling Process
Critical Steps in Maximizing Your Value
 The Asset Purchase Agreement (APA)
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Stock Sale vs. Asset Sale
Asset Allocation
“Going Concern” vs. “File Buy”
Lease Assignment or Restrictions
Prescription Retention Holdbacks
UCC (Liens) Filings
The Selling Process
Critical Steps in Maximizing Your Value
 The Non-Compete Agreement
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Determination of Restrictions
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Term
Geographic Radius
Seller’s Plans
Determination of Value
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Corporate Structure
Paid to Seller Personally
Tax Concerns
The Selling Process
Final Steps
 Preparing for the Closing Date
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Removal of Buyer’s Contingencies
Regulatory Notifications
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BOP
DEA
Medicaid
Medicare
Inventory
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Dating
Inventory Level
Owner Financing/Junior Partnership
Is Owner Financing for Me?
 Owner Financing
 Security Positions
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Risks
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Bank is always first
Personal Guarantees & Cross Collateral
Default
Benefits
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Increases Potential Buyers
Possible Tax Benefits
Provides “Bridge Financing” to Bank Loans
Owner Financing/Junior Partnership
Is a Junior Partnership Right for Me?
 Junior Partnership
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Tax Advantages
Available Programs
Key Employee
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Confidence
Trust
Ability
Questions and Answers
Additional Questions
Contact Information:
Guy Stillwell, R.Ph.
(651) 270-0038
or
guy@pcapartners.com