Buying or selling a pharmacy business could be the most significant commercial transaction you undertake. It is something you need to get right, and it may feel overwhelming. The good news is that pharmacy transactions usually follow a standard process and experienced advisors can ensure things run smoothly:
Preparing the business for sale
As a seller, it’s important that you prepare the business for sale to maximise the sale price potential. This part of the process is focused on positively presenting the business and reducing potential risks to a purchaser.
You would usually engage a broker to assist with this process. The broker will put together a form a sales prospectus that will summarise the business and its financial performance.
At this stage, our role as lawyers is to make sure the business stands-up well to the buyer’s legal due diligence investigations. For instance, we’ll check that the premises lease is properly documented.
Heads of Agreement / Offer to Purchase
Interested buyers who receive the sales prospectus will submit informal offers to purchase. The seller will generally select the highest offer and the parties will then negotiate a Heads of Agreement or a formal Offer to Purchase.
A Heads of Agreement is a document that outlines the main terms and conditions of the proposed transaction. A formal Offer to Purchase has a similar effect.
In pharmacy transactions these are usually binding on the parties. This is important because it means the parties are committed to the sale and purchase subject to the conditions set out in the Heads of Agreement or Offer to Purchase.
Because of this, it is critical that you obtain legal advice prior to signing a Heads of Agreement or Offer to Purchase.
Buyer Due Diligence
Once the parties have entered into a Heads of Agreement, the buyer will usually be granted a period of around 30 days to conduct its formal due diligence investigations on the business.
This gives the buyer (and its representatives) the opportunity to investigate the business to check that the business stacks-up from a financial and legal perspective.
If we’re acting for the buyer, we will usually prepare a legal due diligence questionnaire for the seller to respond to and check critical documentation. For example, we will review the premises lease and check it is in order.
Contract of Sale
In parallel with the due diligence investigations, the lawyers for the buyer and the seller will negotiate the terms of the formal contract of sale. The formal contract of sale sets out more comprehensive terms and conditions of the transaction and includes a schedule of seller warranties.
For instance, if we’re acting for a purchaser we will want to include a warranty to the effect that the purchaser isn’t aware of any proposal for a shopping centre or medical centre to be constructed near the pharmacy – this is because the construction of a shopping centre or medical centre could enable an additional pharmacy to be established near the pharmacy being sold.
Finance & Regulatory Approvals
The Heads of Agreement (and the subsequent formal contract of sale) will include some conditions that need to be satisfied before the buyer is obliged to complete the acquisition. These usually are:
- the buyer obtaining approval from a major bank to finance the acquisition
- the Department of Health approving the issuance to the buyer of a new PBS Approval Number
- the Victorian Pharmacy Authority approving the buyer to carry on a pharmacy business from the premises
- the landlord consenting to the transfer of the premises lease to the buyer
If any of these conditions aren’t satisfied, then one or both parties may have the right to terminate the contract.
Completion
Once the conditions precedent have been satisfied, the parties then have an obligation to complete the sale and acquisition of the pharmacy business.
The parties are subject to a number of obligations associated with completion – for example, the seller will need to ensure that any security interests over the business’ assets are released – wholesalers such as API and Sigma will usually have security interests registered over the pharmacy’s stock.
At completion the buyer will pay the balance of the purchase price and the seller will hand over documentation to transfer assets to the purchaser – for example documentation to transfer the lease to the buyer.
Importance of experienced advisors
Although the process to effect the sale and purchase of a pharmacy business is fairly standard, there a plenty of intricacies associated with sale of pharmacy transactions.
Because of this, it is critical that you engage professional advisors (accountants, brokers and lawyers) that are experienced with pharmacy transactions early-on in the process.
These advisors will ensure that as a purchaser you are buying what you think you are buying, and as a seller you are achieving an exit that is as clean and risk free as possible.
