Tag Archive for: legal issues

Secrets When Selling a Pharmacy

Competitor Calling (including chains)

If your most fierce competitor wants to buy your store, it may be a blessing or may be a curse. It really depends on your past relationship with that person. Don’t necessarily run away. Consult with the experts at COLONY RX to chart your path forward with this potential opportunity (or potential landmine).

Legacy vs. Cash

Selling to a third party compared to a family member almost always results in a higher price and better terms, but if you decide to sell to your family, I both respect and applaud you. Remember to set clear expectations about the family relationship if the business goes south, and be sure to bring in an experienced pharmacy advisor like COLONY RX to get the deal closed.

Owners vs. Employees

Former employees may be a good candidate to buy your pharmacy, but set a strict timeline. We have heard of negotiations with employees dragging on for over 5 years or more. Employee deals can take longer, but if a deal with an employee doesn’t close within 6-12 months, it is unlikely ever to close. In these cases, call COLONY RX to help get the deal closed, even if you have an ideal buyer ready.

Customer Concentration

Customer concentration is a problem. If you have one LTC home that is 40% of your pharmacy, you are going to have a problem selling it. Same if you have one doctor or clinic that is 80% of your scripts. At COLONY RX, we know how to mitigate against these factors.

Asking vs. Selling

If you heard what your friend was asking for his pharmacy and it sold, remember that his asking price was unlikely his final selling price. So don’t set false pricing expectations for your pharmacy based on someone else’s false expectations that never materialized. Additionally, every pharmacy is different, and the same buyer will pay different prices based on their needs and expectations of value. To protect yourself, trust the experts at COLONY RX to make sure you are getting top dollar.

Family on the Payroll

Non-working family members on the payroll can be counted as cash on the bottom line. Just be sure that you can prove to your potential buyer that they truly don’t work in the business or add any value to the business whatsoever. At COLONY RX, we will present your business in the best possible light to buyers, giving you the benefit of tax maximization strategies during the sale process.

Pricing Strategy

Your debts or your retirement income needs are not a buyer’s concern and should not be a significant factor when determining your pricing strategy. COLONT RX will help present your profitability in the best possible light to get you top dollar.

Growth is Good

Declining revenue or RX scripts can be a problem for buyers. Buyers like growth.  COLONY RX can help mitigate against these issues.

Landlords

Landlords can seriously complicate pharmacy sales. COLONY RX knows how to deal with landlords to make sure everyone gets what they need.

Growth Potential

COLONY RX has great expertise in pricing  “growth potential” into our deals. In other words, we can get buyers to pay for not only what the business has done in the past, but what it is likely to do in the future.

First Offer, Best Offer?

Your first offer is sometimes your best offer. You are crazy to leave a great offer on the table because of what may happen in the future. Trust the experts at COLONY RX to know if you should take the offer on the table or keep shopping.

Win-Win

The best offers must be win-win for both parties. If both parties are not happy, something is eventually going to blow up. COLONY RX has considerable expertise in structuring deals so all parties walk away happy.

Business Skeletons

Due diligence is not a time for surprises. Every business has a skeleton or two, so share any problems with your broker early. If you reveal your concerns early in the process, you will hopefully have time to resolve the issues. However, if you wait until due diligence, that small little skeleton may suddenly become frightening enough to scare your buyer away. Trust COLONY RX to present any issues you have in the best possible light and use mitigation strategies to minimize the impact.

By Colony RX

 There a few legal issues that need to be considered by pharmacy owners when selling their pharmacies.

Lawyer signing papers

Finding the Right Lawyer

Candidly, the most important issue is finding a responsive lawyer. In my opinion, being responsive is the most important aspect in a lawyer. It is more important than being experienced because a responsive lawyer will quickly research and resolve questions and issues. So, when you are hiring a lawyer, it is important to feel him or her out for how responsive they will be. At a minimum, they must commit to respond to all communication within 24 business hours. If they cannot commit to this, find another lawyer.

Buying Assets and Not Shares

Substantively speaking, the first issue is that Colony RX, like virtually all buyers, purchases assets of the pharmacy, not the shares. This allows the seller to maintain their corporation (the business entity), retain certain assets which the seller does not wish to include as part of the sale, possibly defer certain taxes, and possibly use certain losses in the corporation to offset the income arising on the sale of the assets.

From the buyer’s perspective, an asset sale will shield the buyer from any liability related to when the seller owned the pharmacy. This is particularly important for any tax liability or legal liability. For example, in a share sale, if a five-year old tax issue arises, it becomes the buyers problem.

The Letter of Intent

Once the buyer and seller have verbally agreed on basic terms of the transaction, we will send a Letter of Intent for your review. A Letter of Intent is a relatively straightforward document setting out the fundamental terms of the transaction. It will specify which assets are included and excluded, the purchase price, an approximate closing date, and certain conditions of closing, such as there being no changes in the pharmacy. The letter of intent will contain confidentiality provisions to protect the buyer and seller, as well as set out the next steps in the transaction.

Generally, after a letter of intent has been signed, Colony RX will engage in a more detailed review of the pharmacy, reviewing its financial statements, operations and contracts. During this process, we will instruct our lawyers to begin preparing the asset purchase agreement to reflect the terms and conditions of the transaction.

Fundamental Terms of the Asset Purchase Agreement

The parties will enter into a more extensive purchase agreement which will contain all of the terms and conditions of the transaction. In such agreement, the seller will make promises about the pharmacy. These are statements about the status or condition of the pharmacy. For example, we will require the seller to promise that they own the pharmacy they are selling, that there are no lawsuits pending or expected, and that the pharmacy license is valid. Your lawyer will review the representations and warranties with you to ensure that they are accurate and to ensure that they are reasonable in scope.

Statutory Requirements

Your lawyer will also help ensure that you comply with all statutes that apply to the transaction. For example, sellers in some states have to file a Bulk Sales Certificate.

Searches and Consents

The buyer’s lawyer will typically perform a variety of searches against the seller’s corporation to ensure everything is in order, such as there being no outstanding lawsuits against the pharmacy. In most cases, issues that arise in searches can be easily resolved.

Third Party Consents

When selling assets, the buyer will need the consent of the landlord, as well as equipment/computer lessors, and, in some cases, key customers or suppliers. We understand that many pharmacy relationships operate on a handshake and there is no documentation between the parties. We work closely with buyers to ensure a smooth transition for everybody, and that these important relationships are protected.

Non-Competition Terms

In connection with the sale of your pharmacy, the buyer will require that the seller, and any key employees, do not directly or indirectly, compete with the pharmacy being sold to the buyer. Non-competition, non-solicitation and non-disclosure agreements will be required, but they key terms will be disclosed in the Letter of Intent.

Other Documentation

While the asset purchase agreement will be the main document for the transaction, there are other supporting documents that will be required. These are mostly standard template documents that are prepared between the lawyers to ensure the assets are transferred in conformity with state and federal law.

Legal Costs and Timing

Typically, from the time a letter of intent is signed, a transaction will take 6-8 weeks to complete. The key factors that determine timing are how responsive the parties are and how many issues arise during due diligence.

By Colony RX

When selling your pharmacy, it is important to remember that confidentiality matters, particularly as it involves staff and competitors. We understand that in many cases, a pharmacy’s staff do not know that you are thinking of selling.

non-disclosure agreement

Therefore, Colony RX requires potential buyers to sign a confidentiality certificate before learning details about the business.

Some people call the pharmacy confidentiality certificate a pharmacy non-disclosure agreement (“NDA”). These are the same thing in all practical respects. In our confidentiality certificates, we require potential buyers to make certain promises to potential sellers who will review confidential information about the business. These generally include promises to:

  1. Keep strictly confidential and not disclose any information with respect to the Pharmacy;
  2. Not to make any contact or communicate in any way with any member of the staff of the Pharmacy without the owner’s consent;
  3. To use the same degree of care to prevent the unauthorized disclosure of confidential information as we do to our own similar confidential information;
  4. To immediately destroy any information which has been provided at the seller’s request;
  5. To use any and all information received solely for the purpose of evaluating the acquisition of the Pharmacy

At Colony RX, it is our sincere intention to help our clients protect their privacy and that of their business. In fact, due to our approach, we have never had an issue involving a breach of privacy or confidentiality. We are extremely cautious and sensitive as it involves confidential information, and treat the process with the utmost professionalism and respect. ColonyRX has a superb reputation in the pharmacy community and our adherence to strict privacy controls helps ensure that our clients’ confidentiality will be protected.

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