Should a Broker be Used When Buying a Washington Pharmacy

By Brad MacLiver
Authorship and profile at Google


When deciding between using a pharmacy broker, or pursuing the acquisition of a Washington pharmacy yourself, buyers of pharmacies and drug stores need to weigh several factors including skills, knowledge, and time.
            
Many pharmacy buyers are experts behind the counter, but many who have never bought a pharmacy in the past, don’t have the complete understanding of all the variables including State and Federal Regulations, negotiating the best price, structuring the deal, and the best options for financing the acquisition. These are skills that many Washington pharmacy buyers believe they possess, but pharmacy buyers need to recognize how many times they have actually purchased a pharmacy compared to a pharmacy industry expert.

Knowledge is power and using a pharmacy broker with extensive know how in valuing and transferring pharmacies will save a pharmacy buyer in Washington considerable time and headaches resulting in a more cost efficient transaction. The cost of acquisition must be considered in the analysis of Return on Investment (ROI). If the acquisition will benefit the buyer, then any additional time spent with a stagnant transaction will be benefits lost.

Transactions are definitely time consuming. When handling a transaction yourself, how many additional hours will you need to work to complete the Washington pharmacy acquisition and then still not be certain if all the details were done correctly?

Just finding the appropriate pharmacy to buy can be an expensive, laborious, and time consuming process. If the pharmacy’s numbers appear to provide the ROI the WA pharmacy buyer requires, is the pharmacy seller both cooperative with the buyer and knowledgeable about the transaction process?

Pharmacy sellers in Washington, their attorney, their CPA, and even their families can slow the process. Pharmacy buyers should understand this and possess the credentials that all of the various parties can have faith in while undergoing the many steps of acquisition.

After a pharmacy has met the preliminary requirements of the buyer, a current market pharmacy business valuation is necessary to verify the current value of the WA pharmacy.  It should be based on a sound financial and market analysis and not just a simple accounting or multiple formula.  In today’s market, pharmacy sellers usually want a higher acquisition price for their family owned pharmacies, than what the current market is willing to pay. A certified valuation completed by a third party who possesses extensive experience in the pharmacy industry will help guide the buyer and seller in their negotiations.

Buying a pharmacy business is not like buying a used car. There are many steps that must be taken. Pharmacy buyers who are not discussing an acquisition with a Washington pharmacy seller who will actually move forward with providing all the documentation and financial statements will be losing valuable time in their acquisition search. Both the seller and buyer need to have a meeting of the minds and provide a collective effort in pursuing the closing of the pharmacy acquisition. By the time a closing occurs and all aspects of the transaction have been completed, substantial cash and time will have been invested.

When inexperienced parties are undergoing the acquisition process it can be a draining experience full of headaches and worries. A smoother and more confident process can be accomplished when a Washington pharmacy industry expert is involved in the transaction. A pharmacy broker will take steps to pre qualify the buyer. This allows the seller the knowledge they are working with a real buyer and not a tire kicker.

If the buyer will need financing to complete the deal they will find many banks will not finance a pharmacy acquisition. A broker working exclusively in the pharmacy industry will have sources of funding who understand the industry and will fund pharmacy acquisitions in WA.

In Washington pharmacy mergers and acquisitions it is important to understand confidentiality, and how the perceived changes may affect employees and customers. A broker acting as the middle man between the buyer and seller can assist the confidentiality of the transaction.

There are many things to consider when purchasing a pharmacy. Using a pharmacy business broker who specializes in the Washington pharmacy industry will benefit both parties involved in the buying and selling of a pharmacy.

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The Washington Pharmacy Industry Roll-Up

By Brad MacLiver
Authorship and profile at Google


The Washington state Pharmacy Industry Roll-Up is where an industry’s many players are consolidated into smaller groups for economic benefits. Industry aspects like recessions or new government regulations that may be stifling profits can end up providing incentives to consolidate.
           
A principal reason for an industry roll-up is to create economies of scale when it comes to purchasing, marketing, information systems, logistics, distribution, and top management. Consolidated businesses also have reduced risk from the impact of unsatisfied customers and have the reward of being able to recruit, or keep, key employees.

An example of an industry roll-up can be seen with the Washington (WA) pharmacy industry. It is a well established industry and is still experiencing sales growth. However, pharmacies and drug stores have seen a steady decline in their profit margins due mainly to government regulations, even as sales increase. There has also been a shortage of WA pharmacists - a required key employee.

Industry roll-ups are often initiated by investors seeking investment opportunities. However, in the case of pharmacies in Washington, the roll-up is a necessity due to declining net profits ratios. Companies that are acquired in a roll-up are usually small independently-owned businesses whose owners believe in the economic benefits of combining forces with a larger organization, or simply need an exit strategy. In the pharmacy industry roll-up, independents have been a majority of the acquisitions, but there has also been a consolidation of a number of the larger WA pharmacy chains.

During the Washington pharmacy industry roll-up pharmacies with better financial wherewithal are acquiring their local competition and combining two or more stores into a single location. This results in more customer traffic through a single location and reduces the expenses that come with multiple locations. This can dramatically drive up total sales while driving down the administrative and overhead costs per customer.

To help fund pharmacy acquisitions in WA during the roll-up, specific funding programs have been developed. These pharmacy chain funding programs are backed by major financial institutions that provide the funding for pharmacy acquisitions. These Washington pharmacy funding programs allow an individual pharmacy business, or an investment group, the capital to acquire and combine pharmacies in geographic areas.

Funders are willing to provide the capital for the pharmacy roll-up because they recognize that combining the individual Washington pharmacy businesses provides a greater total business value than if each individual pharmacy value were added together. This synergistic value reduces the risk of funding the individual acquisition.

When considering the buying, selling, or financing a pharmacy in WA, whether an independent drug store, or multiple pharmacy locations,  due diligence and understanding of all aspects of the transaction should be considered. Using the services of a pharmacy industry expert to guide a Washington pharmacy owner through the maze of details will benefit the pharmacy owner in making the best business decision.

All transactions involved in the pharmacy roll-up need to have the business valued at the current market value. Business valuations for the pharmacy industry should be calculated by a company that has in-depth knowledge of the Washington pharmacy. Simple accounting formulas used by many to estimate a value do not provide an accurate picture because the simple formulas do not take into account the aspects that are causing the pharmacy industry roll-up in WA.

The aspects of the market which are stimulating the roll-up are also having downward pressure on the pharmacy business valuations. Pharmacy owners have been watching what has been occurring in the pharmacy industry. While profit margins slip, new regulations are being imposed, and as reimbursements are pared down there is wide expectation that the business values in the pharmacy industry will continue to slide to lower levels, and thus the Washington pharmacy industry roll-up will continue.

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Washington pharmacy owners - discover tips and resources about buying, selling, financing, and valuing pharmacies at www.BuyingAndSellingPharmacies.com.
For a free pharmacy business valuation visit www.PharmacyValuations.com and click on either Retail or Specialty.
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