Lack of Required Approvals When Selling a Pharmacy

A Favorite Famous Quote
“Most people spend more time and energy going around
problems than in trying to solve them.”  
Henry Ford

Lack of Required Approvals from Stakeholders
It’s hard to believe, but it happens.  Owners put their business up for sale without reaching an agreement with other shareholders, partners or stakeholders who own a portion of the business or whose consent is necessary in selling it. If you have not reached agreement with those stakeholders of your business, it doesn’t matter if you reach an agreement with a prospective buyer.  It will be very hard or impossible to close on the sale of your business if your partner(s) or shareholders refuse to sign the paperwork.  This is a huge waste of everyone’s time.  There may be no more painful experience than going through this type of useless exercise.

Stakeholders include partners, shareholders, family members, franchisors and manufacturers providing exclusive distributorships.  It’s important to obtain stakeholders’ approval before attempting to sell your business.

Partners and shareholders
If you have other partners and shareholders, get Colony involved right away and make sure an agreement exists between all partners/shareholders to sell the business.  Ideally, the agreement empowers you to negotiate on behalf of the entire ownership group.  Get this accomplished before you put the business up for sale.

If you own a franchised pharmacy and you decide to sell, the franchisor is a stakeholder.  Your franchise agreement will address the process of selling your franchise.  It may require notice, transfer fees, training fees, physical changes and the franchisor’s approval of the buyer. 

Before putting your business on the market, it is imperative to talk with Colony as we know all the franchisors and how their agreements operate. There is one pharmacy franchise (I will not mention which one it is) that can be a major problem if you want to sell to someone that doesn’t want to continue the franchise. They are even a pain if you want to close the store. I have gone against them on behalf of several clients before and can talk with you if you have a store in that franchise.

Confidentiality is critical when calling a franchise. They are probably owned by the wholesaler who can tell your competitors. It’s best to ask an intermediary like ColonyRX to investigate confidentially, and we have close contacts at most of the franchises.  You need to be aware of both – the legally documented franchise agreement terms vs. what you are being told verbally.  To fully understand the transfer terms, it is best to get Colony involved.

Exclusive distributorships and PBMs
Because there will be an agreement that addresses transfer rights and the approval process, exclusive distributorships and PBM contracts are similar to franchises. This was a big deal with Horizon pharmaceuticals in the past where we had issues getting them to give distributorships with new stores. We found a way around it even with zero leverage with Horizon. The manufacturer had a lot leverage in approving the transfer of the business to a new owner, so we came up with a workaround.  It is an absolute necessity to read your exclusive distributorship agreement to understand the terms of transfer and it is best to have Colony and your attorney interpret the document for you.  In both instances–a franchise or an exclusive distributorship–disclose the terms of the transfer process to prospective buyers early in the sale process.

PBM’s can be a real pain, with or without a PSAO. This is especially the case in regard to CMS heat zones, PBM quotas, timeout policies and other things. We have ways around this, but the PBM’s hold most of the power, even with state laws catching up to certain restrictive practices. Colony RX will take care of this for our clients.

The Government
The BOP and DEA have policies that need to be followed. This is something Colony takes care of for our clients.

Family Considerations
Your family may also be significant stakeholders that should be considered.  In most instances, the seller needs his or her spouse to be supportive of the decision to sell.  If a spouse is not on board, it can lead to serious conflict or inertia. At Colony, we spend a lot of time talking to spouses of pharmacy owners.

Siblings can also an issue, especially when a store was inherited from a parent. I once had a client whose sister was a bit of an outcast from her family and didn’t have any friends. Her only real relationship was her sister and that relationship was strained. When it came time to sell the pharmacy, which was underperforming, the sister absolutely refused to sell basically to keep her siter in a relationship with her. This was the single hardest family situation I had to unwind.

Depending on the specifics of the situation, your children, your in-laws (spouses of your children) and possibly key employees may be considered stakeholders with whom you need to discuss, but in general, we recommend not telling employees. It is important to heed the warnings in our other articles about maintaining confidentiality of your decision to sell to the ultimate extent possible.  The more people that know of your intention to sell, the greater the chance of a confidentiality breach.  Only you can determine if your children, in-laws or key employees’ interests are so important that you might have to blow up a transaction based on their negative reaction to learning of an impending closing on the sale of your business. Our advice, in almost all cases, is don’t tell anyone who can remotely hurt your chances of a deal until the deal is closed.

As with other obstacles, it’s best to address known issues up front.  If you do not discuss your sale intentions with partners, shareholders, franchisors, manufacturers (in an exclusive distributorship relationship) and your spouse before putting your business up for sale, it will almost certainly come back to haunt you.  The need to do so may seem obvious, but surprisingly enough, many transactions are lost late in the sale process for lack of required approvals from these stakeholders.

Another Favorite Famous Quote
“I’ve always found that anything worth achieving will
always have obstacles in the way and you’ve got
to have that drive and determination to overcome
those obstacles on route to whatever it is that
you want to accomplish.”  
Chuck Norris