Buying or Selling a Pharmacy – Ansons Solicitors’ Top Tips!

Ansons Solicitors is one of the country's leading specialist pharmacy law firms, with particular strength in buying, selling and refinancing pharmacies. We work with pharmacy owners and operatives from the Isle of Wight to the Scottish Borders and through our breadth of experience, our team really understand the specific issues facing your pharmacy business. We regularly act for sellers, first time buyers and large groups.

With increasing pressure on the market, anyone thinking of buying or selling a pharmacy business in 2024 will need to sharpen their game to get the best possible value. To ensure a timely and smooth transaction, we have put together our top tips to help you buy or sell your pharmacy business in 2024:

1. Deposit and exclusivity – Deposits are increasingly common in pharmacy transactions. They provide the seller with some security that the buyer is committed to the transaction and, in certain circumstances, the seller’s reasonable fees will be covered should the buyer withdraw for no justifiable reason. In any case, a deposit should be proportionate, reasonable and refundable in certain circumstances. Exclusivity is often used in conjunction with deposits to give the buyer comfort that the costs they incur during the acquisition process will not be wasted, as competing rivals will be excluded from the process. The period of exclusivity is often negotiated and should be discussed at the outset. Before signing a deposit and/or an exclusivity agreement, we recommend that the terms of the agreement are reviewed by a pharmacy specialist lawyer to ensure that you understand the potential risks involved.

2. Funding – Buyers will often have to turn to a bank or specialised lender to help finance the transaction. Some of the large institutional lenders have specialist healthcare teams who deal with pharmacy transactions and buyers would be sensible to approach these. Some lenders may have better deals for first-time buyers, or others may have better rates for someone looking to increase their portfolio. There are specialist brokers who can help you get the best deals. It may also pay to consider refinancing on further acquisitions.

A buyer should also beware of the ‘funding gap’, being the difference in the offer a buyer has made for a pharmacy and the amount a lender is prepared to lend. An offer does not equate to value and a buyer should ensure they can bridge any gap between their offer and the amount a bank will be prepared to lend, particularly if that gap is larger than expected i.e. where the bank has valued the business at a lower level than the broker. A seller should also be mindful of particularly high offers and seek assurances from a buyer that they will have sufficient resources to stand behind it.

3. Property – Property is key to a pharmacy, particularly given its relationship to the NHS contract, and so it is vital to carry out thorough investigations (including searches and surveys) to ensure that there are no issues in terms of its state and repair. Dilapidations can often be a stealthy but significant liability.

It is not unusual to discover that a lease is in an individual owner’s personal name rather than their company’s name. This is often as a result of a sole trader incorporating the business and the lease not being assigned at the time (quite often to save costs). This could cause several problems. For example, the landlord could view the lease as having been breached and may forfeit the lease, leaving the business without any premises. This could also lead to a landlord effectively holding a tenant to ransom in certain situations. Any costs saved by not dealing with the assignment properly in the first place are likely to be short-lived and the costs to rectify likely being much greater. Most banks will take security over leasehold premises and if they discover that the property has been unlawfully assigned (without their consent) or if the business decides to refinance, the bank will expect the position to be rectified to protect their security interest. You will also be breaching your covenants to the bank.

4. NHS Regulations and applications – There are a number of regulatory aspects to consider in any pharmacy transaction and experienced advisors will be able to advise you as to what applications or notifications will need to be made and at what point during the sale process. For example, if the NHS contract is being transferred, an application will need to be made to the relevant NHS England local area team and in a timely manner. The approval process can often take months and there is a further 30 days when submitting a notice of commencement. Appropriate protections will also need to be considered.

A seller should also ensure that the pharmacy licence is in the correct name of the operator. As with the lease, it is not uncommon to discover that a pharmacy licence is in the name of the individual rather than the company. This can cause significant delays and should be checked, and rectified as early as possible.

5. Employees – Employees are the heart of any business, particularly in a local community pharmacy where the patients are comfortable with familiar faces. Key employees may be considered an important part of the pharmacy and its associated goodwill, especially when maintaining a good rapport with patients and local GPs. Therefore, it is an area that should be handled with care by both a buyer and a seller. Employees are protected by the Transfer of Undertakings (Protection of Employment) Regulations (commonly referred to as TUPE). Sellers are advised not to agree to any changes to their employees as part of negotiations without speaking to a solicitor first. Equally, buyers should not assume that they can walk into a new business and dismiss employees or change their terms of employment. Failure to comply with employment law can lead to significant claims by the employees against both the seller and the buyer.

6. Data protection – A pharmacy, by its very nature, has access to extremely sensitive information about its patients and its employees. Confidentiality is of paramount concern for patients and it should also be a priority for any pharmacy. A pharmacy and its employees will all be subject to various data protection regulations. All pharmacies should be registered with the Information Commissioner’s Office at www.ico.org.uk. Registration is straightforward and it is not unusual to find that smaller community pharmacies are not registered.

7. Due diligence – A prudent buyer should carry out thorough due diligence into all aspects of a business including finance, tax, employees, contracts, complaints, compliance, insurance and suppliers. A seller should be prepared to provide as much information as possible and needs to be well organised for this. A seller can prolong a transaction by not providing full information when requested, which can also make a buyer wary. Preparation is key to a smooth transaction!
It is important for any business to ensure that they keep a record of all of the policies and contracts that they are a party to and to ensure that they are up to date, in writing and signed and dated by both contracting parties, including employee contracts. Retaining full and complete copies will save you time and effort in the long run, particularly if you need to refer to them when selling the business.

8. Tax planning – effective and timely tax planning can potentially save thousands (even tens or hundreds of thousands!). An experienced accountant will be able to give you some good advice on how to structure your business and make the most of the various tax reliefs and rates available to you. It is never too early to think about this and some of the most common and effective reliefs need to be thought about at least two years in advance. Ansons Solicitors can help you put into place any tax planning recommendations.

9. Advisors – When looking to acquire or dispose of your pharmacy it is best to use advisors with specialist knowledge in the pharmacy sector. There are a number of experienced sales agents, accountants and solicitors who specialise in the pharmacy market and will be able to give you the specialist advice that you require, whether buying or selling. This will enable you to obtain the maximum value for your business and will hopefully save you time and, more importantly, money and make for a smoother process. ;

Ansons Solicitors have developed an expertise in the pharmacy sector with a team of specialist pharmacy solicitors who understand the particular needs of the industry and appreciate the specific requirements of a pharmacy business. Ansons Solicitors have developed a strong network of close professional contacts within the pharmacy sector, which includes a range of trusted advisors who can help with sales, accounting, pharmacy regulation and pharmacy finance.

Contact Jamie Gill on 01543 431185 or jgill@ansons.law for further information or to request a copy of our pharmacy brochure.