Tag Archive for: lawyer

By Colony RX

Preparing To Sell Your Pharmacy

 If you want to:

  • Achieve the best price for your pharmacy.
  • Agree terms and conditions of sale, which are favorable to you.
  • Have the sale progress through each stage quickly and with minimum stress.
  • Have a positive relationship with the buyer, the staff, and all other stakeholders during and after the sale.

You need to:

  1. Adopt the right attitude. This means being committed to the sale. You should therefore be sure that you are ready to sell your pharmacy before starting the process.
  2. Be realistic about the price. While ColonyRX has a reputation of paying top dollar for pharmacies, it is important to have a realistic objective.
  3. Be proactive. The only way the sale will progress quickly is if everyone involved is proactive. This means that the seller, the sellers’ lawyer, the buyer, and the buyer’s lawyer, all need to be committed to the sale and be responsive.

Lawyer – Virtually any lawyer can close a pharmacy transaction. It is not important that they be experienced in pharmacy transactions, only that they be responsive.

Accountants – You will want to tell your accountant about the transaction in order to properly address any tax issues.

Essential documentation:

There are different types of documentation that ColonyRX will need to review during its due diligence of the pharmacy, including:

  • Accounting and tax records;
  • Script reports from the pharmacy software system;
  • Copy of the lease. If you own the property, we will agree on a new lease.

Different perspectives:

Look at your pharmacy from a different perspective, for example, what would you be looking for if you were buying the pharmacy?

Buyers want:

  • To know they are making a sound investment.
  • Potential to increase the sales and profitability of the pharmacy
  • A pharmacy that they feel is relatively safe from competitors.
  • A pharmacy with a path to growth.
  • A pharmacy with dedicated and loyal employees.
  • To be confident that the pharmacy’s prescribers will be there in the future.

If there are issues that could negatively impact your pharmacy, this does not mean that you can’t sell it. A problem for the seller is not necessarily a problem for the buyer. Just be sure to disclose everything so Colony RX can work through any issues with you.

By Colony RX

handshake

When selling your pharmacy, it pays to learn from others who have completed transactions. As pharmacy buyers, we have earned scars from broken deals, learned many humbling and expensive lessons, and spent hours doing our best to structure the perfect win-win arrangement with sellers. Even now, I learn something new or experience something unpredictable in each transaction.

Here is the best of what I have learned about buying pharmacies that will be of benefit to those selling them.

Put Time on Your Side

Most business endeavors are easier and better when time is your friend.  The opposite may also be true – it is difficult to optimize the results of a pharmacy sale if you compress the time available to work all of the components.  This applies to both the time available each week and the time from the start to the finish of the overall process.  As the saying goes, the best time to sell a business is when you don’t have to. Because of this, start the process early. And consider accepting a fair offer for your business even if it is a few years earlier than you envisioned selling your pharmacy. A fair offer may not be around when you need one.

Responsiveness is Godliness

Sellers may find it surprising how important responsiveness is to the buyer. If a seller is not responsive, and it takes weeks to respond to requests for information, the buyer will often assume the seller is not interested and just move on to other opportunities.

Real Estate Issues

It can be unbelievably frustrating when a landlord is holding up the sale of your pharmacy. Most stopgaps occur because the landlord is not being responsive or doesn’t know what they want to do with the premises.

Know When to Stop Negotiating

It is important for sellers to understand that pharmacy buyers can get distracted or dissuaded at different points in a transaction. One of the easiest ways to turn off a buyer is to try and re-negotiate fundamental elements of the deal after an LOI is signed. The message the seller is sending to the buyer is that they (the seller) are untrustworthy, and it makes the buyer question the entire transaction.

No Material Changes

To ensure a successful close, pharmacy owners should keep the underlying business performing (frankly, it is really good if the business results improve during the sale process). If there are any changes, the buyer should disclose them immediately, because if the seller finds out about a problem rather than learning about it from the buyer, it creates a second problem. That problem is that the buyer will now question what else the seller has not disclosed. As an example, there has only been one time when we have not closed a deal after an LOI was signed. This happened because we found out that the seller didn’t disclose that he had a $300,000 clawback from a PBM.

Selling a Business is All About Fit and Timing

Along with everything else, selling a pharmacy is a numbers game. You need to find a way to maximize your chances that you will find a buyer for whom your pharmacy is a great fit and the timing is perfect.  For many buyers who may be great for your pharmacy, it may be bad timing as they are focused on other things. There are so many things behind the scenes that affect how buyers behave that you will never know what is truly happening in their minds. As such, it is very risky to decline a fair pharmacy deal because you are hopeful a better one will come tomorrow. It is more likely that the buyer will have found some reason not to buy your pharmacy when you come back to them in the future.

Everyone Freaks Out Sometime During the Process

In nearly every pharmacy purchase and sale, there has been a moment when the pharmacy seller and buyer both feel stress. This is quite normal because the sale process can become totally consuming. We feel the fundamental issue is that many sellers underestimate the time involved in completing the transaction, which is time spent in addition to their other usual personal and work activities. Some days they can question the transaction itself– although we have never had anyone walk away because of “deal fatigue”. It is no one person’s fault that the process is frustrating and time-consuming.  Most everyone is trying their very best to do the right thing, and virtually all deals that get to the LOI stage will get to the finish line.

Control the Lawyers

While it is important to rely on lawyers (and accountants), sometimes lawyers can impede a transaction. In order for a transaction to be fair, there is going to be risk for the buyer and seller after the transaction. There sometimes comes a moment where everyone must tell his or her attorneys to pick the most important issues, ignore the rest, and get the deal done.

Image: Flickr

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

Inside the Pharmacy Sale Process

What does a pharmacy purchase look like, from start to finish?

In this post, I will describe the primary steps in selling and buying a pharmacy.

Step I: Sourcing

Before a buyer ever talks to a seller, before a deal even gets off the ground, the buyer and seller need to find each other. This is what we call sourcing.

During the sourcing stage, the pharmacy buyer is combing the landscape, sifting for pharmacies that have good traits, researching them, weighing risks and benefits, and using this information to decide which pharmacies to contact.

In this stage, ColonyRX on behalf of our sellers casts a wide net, and tries many different ways to reach people to tell them about the opportunity. We still find the best way is word of mouth, where we get a referral to a potential seller with someone who knows our stellar reputation in the pharmacy community.

Step II: Screening

The screening stage consists of a very high-level conversation with the potential buyer. When we have this first call, we assume the buyer knows nothing so they don’t pass based on wrong assumptions. We typically have four general things to convey:

1) What type of pharmacy dare we representing? For example, do you own a traditional retail pharmacy or a specialty pharmacy or a closed-door LTC pharmacy. In this question, we want to know where your scripts come from and what kind of scripts you dispense.

2) Where is it located? What kind of community are you in? What kind of building are you in?

3) What is your top-line revenue (gross sales)?

At the same time, we are screening the buyer. We want to know what the buyer will do with the store; what experience they have and what their financial capacity is to close.

Step II: Confidentiality Certificate

If the pharmacy buyer and Colony (on behalf of the buyer) decides to move forward, we will send a confidentiality certificate, also known as a non-disclosure agreement (“NDA”). In short, the NDA is a legal document that protects any confidential information about the business shared by the seller. For more information on this, see our blog post about Confidentiality. Sometimes we issue this earlier or later in the process depending on the buyer and the circumstances. It’s really a judgement call on our behalf.

Step IV: Due Diligence

A signed NDA kicks off the first round of due diligence (“DD”). Put simply, due diligence is the investigation of a pharmacy. In the first due diligence stage, we will ask for recent tax returns and/or financial statements. It should not take more than 10 minutes to get these documents from your bookkeeper or accountant.

Once we have this information, we will often have a more detailed phone discussion about the:

  • Pharmacy Operating history
  • Script mix
  • Real estate/physical location
  • Staff
  • What the seller wants to do after the sale
  • Growth opportunities

The diligence process is a two-way conversation. The primary goal of diligence is to provide a general picture of the pharmacy, communicate risks, and answer any questions.

Step V: Indication of Interest

After a cursory round of diligence, if the parties are still interested in the transaction, we ask the buyer to send an e-mail (or call us) to review key terms. We try to keep this focused on just a handful of issues: The purchase price (and terms), the key items needing further diligence and the expected timeframe to close.

Step VI: Letter of Intent

Assuming the seller and buyer agree on the general terms, we ask for a comprehensive Letter of Intent (“LOI”).

The LOI is an agreement that discloses the most important terms of a transaction. Please see our other post called “The Letter of Intent” for more details. For the purpose of this post, the LOI will usually include:

  • Details on the pharmacy sale price and how it will be paid.
  • Any assets that are excluded from the transaction.
  • Estimate of closing date.
  • List of tasks that need to be completed by closing.
  • Period of exclusivity where the seller agreed to only deal with the buyer.
  • Any additional areas of due diligence required by the buyer.

The LOI is, in our view, the most important milestone in the successful sale of a company. This is because, to date, virtually 100% of deals for which Colony RX has received an LOI from a well financed buyer will close. If the buyer and seller can get past this stage, in all probability the deal will close. The next steps, while necessary, are largely a formality.

Step VII: More Due Diligence

Once the LOI is signed, the buyer will request more detailed documents and other diligence from the pharmacy, and arrange an onsite visit to view the premises and meet the seller in person.

Step VIII: Finalizing The Asset Purchase Agreement

In this step, all the paperwork is completed. The parties will complete a comprehensive asset purchase agreement, finalize things involving the landlord and employees, and get the pharmacy transaction right to the finish line, except for the inventory count. In this stage, things tend to be simplified because all of the key business terms are disclosed upfront in the LOI.

Step IX: The Closing and Transition

On the evening before the closing time, the inventory of the pharmacy will be taken by a third-party company. The company is hired jointly by the seller and buyer to ensure the inventory count is accurate. The price of the inventory is based on the seller’s acquisition cost, net of rebates and discounts (this formula is something we carefully negotiate). The morning after the closing date and time, any outstanding paperwork is finalized, such as populating the Asset Purchase Agreement with the final inventory amount.

Step X: Residual Transfer Issues

Once the transaction is complete, there is still some work to be done in credentialing the pharmacy with new third-party contracts, transferring different account from the owner to the seller, reconciling accounts, etc. The vast majority of the work at this point falls on the buyer.

This overview is only general. However, At Colony RX, we feel running a very structured process is necessary to completing a transaction with minimum frustration. The reason is that by following a structured process, we are sure to catch and address issues early, avoiding expensive and time consuming negotiation of issues later in the deal process.

Image: wavebreakmediamicro / 123RF Stock Photo

By Colony RX

The 20 Key Sections In a Pharmacy Purchase Agreement

When you sell a pharmacy, the buyer and seller will execute a comprehensive asset purchase agreement (“APA”) which is negotiated between them. Generally speaking, the purpose of the asset purchase agreement is to document what is being purchased, what is being paid, and clarify who is responsible for what both before and after the sale.

Each pharmacy purchase agreement is different, and is worked on by the seller’s and buyer’s respective lawyers. At a very high level, here are 20 key sections in every pharmacy asset purchase agreement:

  1. Identifying the Parties: The legal name of the pharmacy seller’s corporation and pharmacy buyer’s corporation are identified.
  1. Recitals: Here, the parties state their general intent, which is that the pharmacy seller and pharmacy buyer desire to enter into an agreement to sell the assets of the pharmacy, and that the pharmacy will continue to operate as usual until the transaction is closed.
  1. Included and Excluded Assets: This section spells out which assets and liabilities are included and excluded in the pharmacy sale.
  1. Purchase Price: This section details what the purchase price is, what it is for, and how and when it will be paid.
  1. Allocation of Purchase Price: This describes how the purchase price will be allocated between the different assets.

 

  1. Inventory Value. This section describes the inventory that will be bought, and how it will be valued. For example, damaged, spoiled or expired pharmacy inventory will not be purchased.
  1. Representation and Warranties of the Seller. These are the promises the seller makes to the buyer. These include:

 

  1. The pharmacy selling the assets has the ability to sell the assets. For example, there is no court order or shareholder preventing the sale of the assets.
  2. Any contracts that the seller will assume are valid contracts.
  3. The pharmacy is not involved in any lawsuits and is operating in compliance with all laws.
  4. The seller has proper insurance in place.
  5. There is nobody who needs to give permission for the seller to sell the pharmacy.
  6. Seller has filed all required tax returns.
  7. Seller confirms all financial statements are valid.
  8. Seller confirms that nothing has changed since they showed it to the buyer.
  9. The assets of the pharmacy are in good operating condition and repair.
  10. The records of the pharmacy are true and complete.
  11. The seller has all necessary licenses and permits to operate the pharmacy.
  12. The pharmacy software is generally working and in good condition.
  13. Seller has fully and proactively disclosed all material things to the buyer.
  14. The pharmacy has conducted proper billing practices.
  15. The lease is valid.
  1. Representation and Warranties of the Buyer: These are the promises the buyer makes to the seller. Most of these are the same as what the seller promises the buyer, but there are less promises because the seller relies on fewer promises than the buyer.
  1. Covenants of Seller: These are general promises that the pharmacy will continue to operate up to the closing date as it has before the closing date.
  1. Confidentiality: These are mutual promises to keep the terms of the transaction confidential.
  1. Employees: A section that confirms that all pharmacy employees are given employee contracts.
  1. Buyers/Sellers Conditions of Closing. These are things that must happen for the transaction to close, including that all previously made promises continue to be true; All documents have been delivered; The pharmacy continues to operate as usual; and the landlord and buyer have executed a lease.
  1. A section that confirms the that the seller will help the buyer obtain licenses and contracts needed to operate the pharmacy (e.g. BOP license). In addition, it references a power of attorney that allows the buyer can use the seller’s contracts and licenses until it has its own contracts and licenses.
  1. This section sets out the terms of the seller’s non-competition and non-solicitation agreements.
  1. The indemnification section promises the buyer that they will not be responsible for issues that arose before the sale, and the seller that they will not be responsible for issues that arose after the sale.
  1. The expenses section confirms that the Buyer and seller each pay their own expenses.
  1. The severability section confirms that if one section of the agreement is invalid, the rest of the agreement is still valid.
  1. The APA is the only agreement, and this section confirms that any “side agreements” are invalid.
  1. This section confirms that the agreement may be amended only if everyone agrees in writing.
  1. Last, the exhibits and schedules contains all of the documents associated with the purchase agreement, such as a copy of the lease.

As noted above, these are only some of the terms in a standard pharmacy purchase agreement. Each transaction is different, and each pharmacy agreement is customized to the specific transaction. This is why it’s important to have a great advisor who will help you achieve the best possible result for your goals.