Most contractors are now familiar with maximising value from a financial perspective and will understand that higher EBITDA (earnings) will drive a higher sales price for their pharmacy.
However, many contractors enter into a sales process without an understanding of the key drivers for maintaining the price that has been agreed and avoiding any erosion of value, or losing a buyer altogether.
In any sales process, it is the seller’s job to build confidence with the buyer and get them to a place where they are happy to write a cheque. This building of confidence is achieved by avoiding any surprises. The secret to that is PREPARATION.
We often work with owners of pharmacy groups seeking an exit several years before a sale takes place. This enables us to prepare the group’s people, processes and documentation for the due diligence process that will inevitably be carried out by a well-advised buyer.
Many of the processes that we execute in such circumstances are completely transferable to a contractor selling a single outlet or a small group. Ensuring the following 3 basic factors are under control will avoid delays in the process, which is a key factor in a buyer losing confidence or the support of their funder.
1) Become ruthlessly organised
This is difficult. Bureaucracy in all businesses continues to become ever more complex and tiring, but having accurate records at your fingertips will avoid delays and inspire confidence with the buyer.
Taking several weeks to answer simple questions will reflect badly. Even if a business is fantastic, appearances are everything.
Many of the potential stalling points on a sale can be dealt with in advance, such as asbestos surveys, EPC, fire risk assessments, staff contracts and procedures – all items which a well-organised contractor will have in hand but often may not be able to evidence or put their hands on quickly.
2) Check the fundamentals
We are regularly instructed on sales of pharmacy businesses where one of the issues below arises:
- The wrong contractor is included in the NHS Pharmaceutical List (often as a result of a flawed incorporation)
- The lease of the premises from which the business trades has expired and/or is in the wrong name
- Locums have been working regular patterns and could be deemed to be employees
- Tax planning has not been taken early enough to maximise value and tax-efficiency
These are all matters that can be dealt with very easily provided the advisers have enough time – they are also factors that can be a challenge for a buyer and cause delay.
These fundamentals, if not dealt with adequately are potentially delays to a deal – the old adage ‘time kills deals’ applies. Funding approval will typically expire after 3 months and any deal taking longer than that runs the risk of credit appetite or financial terms changing for the buyer.
3) Deal with challenges head-on
All businesses have imperfections – these can be either resolved well ahead of the sales process (if advisers are engaged in advance) or presented to a buyer during the process.
Presenting issues in a positive way (with a solution if possible), helps smooth any bumps in the road. Too often we see advisers store up any difficult issues until the last minute, when it is believed that the buyer is too committed to walk away. These are the classic circumstances for the seller to lose value and goodwill with the buyer, as well as potentially prejudicing a successful completion.
In summary, there are pounds to be won and lost in the way a sales process is managed.
A seller’s focus should be on getting the deal over the line as efficiently and smoothly as possible. Their legal adviser should be mindful of the challenges above and release their client’s management time so they can focus on other aspects of the deal and running their day-to-day business operations.
At Turner Parkinson we understand the importance of being lawyers that do more than prepare legal documents, our market-leading experience gives us the insight to guide our clients through difficult issues that would otherwise become major sticking-points and get the deal done.
For more information on this, get in touch with David Easdown.