Four Considerations for Timing Your Pharmacy Sale
By Colony RX
For most pharmacy owners, selling your pharmacy will be a defining moment in your life. Whether it’s a family-owned pharmacy that has been passed down from generation to generation, or a company that you started, the process of selling your pharmacy can be an emotional rollercoaster riddled with unforeseen pitfalls — after all, the last thing you want to see happen is see your company in the hands of the wrong buyer.
Of all the things that can derail the successful sale of your pharmacy, timing the sale can have a huge impact on your company’s ultimate valuation and even determine if it is sellable at all. Most pharmacy owners we talk to have an exit horizon determined by when they plan to retire or leave the pharmacy – but to their peril, they often ignore a number of both internal and extraneous factors that can affect their pharmacy’s valuation and even the viability of a successful transaction taking place.
As you consider whether you should prepare to sell your pharmacy now, in three years, or ten years from now, be sure to include the following key considerations in timing the sale of your pharmacy
Core financial performance
Colony RX, like all other buyers, will look at the current profitability of the pharmacy. We then make a lot of assumptions about the growth trajectory of the pharmacy, but a generally accepted baseline is to look at a pharmacy’s historical financial performance and pattern – typically the most recent three years – in order to project growth. Accordingly, pharmacies showing strong, predictable growth will be worth more than those with erratic or little growth, all else equal. This is why you’ll typically hear experts recommend that you sell your pharmacy at the height of its financial performance, and ignore the temptation to hold onto your pharmacy. Here, we see two risks for sellers. The first is that sellers don’t realize their business is at its peak, and they do not sell when they could get maximum value. The second is that when they want to sell in the future, they cannot because the pharmacy has declining performance, and buyers find it hard to value declining pharmacies.
Broader industry and economic trends
Numerous factors external to your pharmacies core financial performance will impact valuation and your timing of a sale. Pharmacy is undergoing rapid changes – due to new technologies, regulatory changes, and most important, declining reimbursements. Government fiscal and monetary policies, too, can affect timing. For example, many sellers who had been contemplating a sale in 2012 were motivated to accelerate the process due to the expected hike in capital gains taxes in 2013. Similarly, rising interest rates will make it more costly for buyers to finance their transactions with debt. Perhaps the most glaring example of how the health of the broader economy affects the sellability of your company is the global financial collapse of 2007/2008. Amidst widespread uncertainty and volatility, banks were not lending, and pharmacies remain unsold. Though you may feel that most of your company’s value is tied to the strength of its financial performance, be sure to take into account how some of these other factors will impact the success of a transaction.
Your personal post-transaction goals
You may not know what you want to do after you sell your pharmacy, or that you want to exit your business entirely and move onto the next stage of your career (or life). This is one of the reasons that Colony RX gives the seller the choice to remain with the business, from full-time to part-time. In fact, the seller can often set their own schedule.
It’s about fit
For many pharmacy owners, the price of their business isn’t the only important consideration in pursuing a successful transaction. In fact, many pharmacy sellers care as much about the legacy and continued success of their company, patients and staff as they do about other factors. At COLONY RX, we work with sellers to make sure they are the right fit with the buyer, and that the needs of all parties are met.