Rhode Island Pharmacy Acquisition Finance

By Brad MacLiver
Authorship and profile at Google


When a RI pharmacy is being sold, seldom does the pharmacy buyer pay cash for the acquisition. Even when cash is available, pharmacy buyer strategies in Rhode Island usually involve financing the transaction.

Typical acquisitions take 6-9 months to complete, so the pharmacy seller will need the buyer to provide some proof up front about their ability to close the transaction. Acquisitions will involve many hours of due diligence, and negotiation. Along with the buyer and seller the acquisition will involve attorneys, accountants, lenders, valuation companies, pharmacy industry specialists, Rhode Island pharmacy brokers, along with others. No one wants to pursue 6-9 months of work involving a variety of highly paid professionals without having some confidence of the pharmacy buyer’s ability to close the deal.

The process will begin with determining the value of the drug store. There are many companies that offer valuation services. However, due to the changing circumstances of the pharmacy industry a pharmacy industry specialist should be used for valuing the company instead of a valuation company that has a broader spectrum. In order to complete a valuation the selling company needs to provide up-to-date data. Lenders funding RI pharmacy transactions will not accept a sellers “gut feeling” or a value based on a simple accounting formula. Lenders need to make a decision to finance a pharmacy based on sound and verifiable information.

There are a number of methods to finance a Rhode Island pharmacy acquisition. Each can be customized or included with other forms of financing to provide the buyer with the best financing package and the greatest chance for the businesses financial success.

Structuring the transaction is extremely important. The drug store seller of course wants as much money as possible and wants cash. However, the pharmacy buyer in Rhode Island desires to spread out the debt service, wants to have as little cash as possible invested in the acquisition.

The pharmacy industry is in a market where it is more difficult to obtain funding. For the acquisition to be financed a lender will need a strong understanding of the RI pharmacy industry and what, beyond the collateralized assets, the company offers to reduce the perceived risk.

One easily understandable example of this is the Pharmacy Industry. Rhode Island pharmacies have typically been known for generating profits and to be stable businesses, but they are usually located in leased spaces.  Their furniture, their fixtures, and their computers will typically provide only $15-20,000 of collateral for a buyer requesting a million dollar loan. Quite a bit of money is tied up in inventory, but the pharmacy's small pills are usually considered as easy to move by a lender out the door in the event of default. These circumstances mean that many lenders will not loan money to these traditional money making businesses.

When pursuing Pharmacy Acquisition Finance, for the best chance of success, make sure the Rhode Island pharmacy valuation company and the lender have expertise in the pharmacy industry.

Tips:

1. Attorneys and CPAs who have been representing the pharmacy or drug store for many years may see the transaction as putting themselves in a position of losing a client when the business is sold. Make sure they are working diligently on the pharmacy transaction in RI and are not slowing or undermining the process.

2. Since Rhode Island pharmacy acquisitions involve 6-9 months and sometimes a couple years, all parties involved need to be aware of time tables. Much too often, items of importance end up sitting on the desk of someone that is outside of the control of the buyer or seller.

3. All of the pharmacy’s financial information needs to be current. Over the lengthy process the data supplied to both the buyer and the lender will need to be updated on a continuous basis. Things can change drastically during a nine month period and the Rhode Island pharmacy seller will need to continually prove the financial condition of the company.


************************