Someone wants to buy your pharmacy. Now what?
As transaction advisors who have pretty much seen it all, we are huge proponents of preparation and long-term planning when it comes to selling a pharmacy business. In the real world, however, opportunity that comes knocking can overtake the best-laid plans.
Sometimes, a potential buyer will appear out of the blue and make an unsolicited offer. What should a pharmacist-owner do in such a situation?
Some, no doubt, will jump at the chance to sell their business to someone who’s interested enough to make an unsolicited offer. They might think accepting the deal outright will spare them from having to prepare and market their pharmacy, saving time and resources. On top of that, many owners will be flattered that a buyer is interested at all.
But remember, selling a pharmacy is a big life event, and it will impact your financial and emotional well-being for a long time to come. It is not a decision to be taken lightly, no matter how flattered you might be.
So, if a buyer comes calling, step back and take a breath. Let the first flush of emotion pass. And then try to answer a few very important questions:
- How much is your pharmacy worth?
Do you know? Most pharmacist-owners don’t, even though they think they do. But the only sure way to evaluate an offer, unsolicited or not, is to have a clear understanding of the market value of your pharmacy. While there are a lot of “rules of thumb” methods out there, you cannot beat an evidence- and experience-based valuation prepared by a qualified business valuator.
If you don’t have such a valuation at hand, or if the potential buyer will not give you the time to have one prepared, then maybe it’s a signal for you to step away from the deal.
Beyond market value, there is another important number – what business guru John Warrillow calls “your number.” It’s the price at which you personally would be willing to sell your business, one that fits with your life and financial goals. Before you say yes to an offer, do you know what “your number” is?
If you are inclined to accept an unsolicited offer, one option is to commission a fairness opinion. It is a report prepared by an unbiased third party (for instance, a qualified business valuator) that assesses whether the price and terms of a proposed business acquisition are equitable. While it’s no substitute for advance planning and preparation, a fairness opinion can still help you make a more informed decision and save you plenty of regret and headaches down the road.
- Has FOMO taken over?
If an unsolicited offer comes your way, you might be worried that if you say no, you will look back years later and wish you had accepted. That could happen, of course, but your primary motivation to accept an offer should never be fear of missing out. Some buyers will try to nudge owners into selling by talking about uncertain economic conditions or a scarcity of capital in the general marketplace. In our view, neither of these is a pressing concern right now; in fact, the biggest current barrier to getting deals done is a shortage of pharmacists.
Remember, market conditions change all the time, and potential buyers come and go. What’s important is to find an opportunity to sell that is right for you.
- Is the buyer seeing something you aren’t?
Sophisticated buyers of pharmacies don’t just consider present value, but future value as well. Demographics, location, facility upgrades or operational changes – all of these and more can boost the profitability of a store and therefore its value. As a pharmacist-owner, do you know what your store’s potential really is? If you don’t, you might accept an offer that doesn’t fully reflect your business’s long-term value. A more profitable approach might be to identify ways to improve profitability and/or lower risk and implement them before selling later – and at a better price.
- Is your business tax-ready?
When you sell your business, you and other shareholders may qualify for the lifetime capital gains exemption, which allows for more than $970,000 of sale proceeds to be tax-free. Since selling a pharmacy is a huge liquidity event, the cap-gains exemption is a very big deal. But there are conditions. To get the exemption, the business in question must meet the strict criteria of a Qualified Small Business Corporation, and getting your QSBC house in order can take time. Among other things, non-active assets (not directly linked to operations) must be 50% or less of all the company’s assets for two years before a sale and less than 90% of business assets at the time of the sale. If your company is not QSBC compliant, you could end up paying hundreds of thousands of dollars more in taxes than you might have otherwise, and that juicy unsolicited offer you just accepted won’t look so good in hindsight.
- Are you getting good advice?
A pharmacy acquisition is a complex process, involving a host of legal, accounting and tax issues, not to mention the ins-and-outs of negotiation. If an offer comes from a big corporate buyer, rest assured they have a team of experts on their side. But who is in your corner? In our experience, sellers who have their own team of qualified experts stand a much better chance of a successful sale.
An unsolicited offer doesn’t short-circuit the need for sound advice. In some cases, it can make such advice even more worthwhile. So, if you think getting an offer out of the blue is a good reason not to spend money on lawyers, accountants and transaction advisors, think again. The money you leave on the table by accepting a bad offer usually pales in comparison to what you will spend on a good advisory team.
Also, if a bidder objects to your taking time to get advice about the deal or tries to convince you that you don’t need advice in the first place, then that's a very large red flag.
- Are you ready for life after pharmacy?
Selling your pharmacy will have a profound impact on you and your family. Preparing a long-term exit plan and strategic wealth plan will go a long way towards ensuring that this significant life event aligns with your financial and life goals and that you are ready for the transition. But if an unsolicited offer comes along and you don’t have your planning in place, you have to ask yourself whether now is the right time to sell for you and your loved ones.
