When a pharmacy goes up for sale, the owner typically shields their identity and the name of their business until a potential buyer signs a legally binding non-disclosure agreement. The reasons are straightforward: Confidentiality preserves the value of the store and ensures steady operations during negotiations to the benefit of existing patients and staff.

So then, if you’re a potential independent pharmacy buyer, how do you find acquisition opportunities that would meet your needs when they’re all hidden from public view?

In all candor, no single search engine or service provider has definitive knowledge to share about all the pharmacies for sale in every location across the country. However, help is readily available from diverse industry sources that can support your acquisition process.

 

What to expect

You most likely have ideas about preferred location, store size, business focus and price range—and these factors will guide you in tracking down viable options. You can start by browsing business listing websites, state boards and industry organizations like the NCPA to start your pharmacy search. You can also enlist the help of pharmacy acquisition advisors, brokers and other pharmacy owners, as these individuals can offer various degrees of insight into available stores.

In particular, advisors and brokers tend to have unique knowledge of current opportunities, as well as prospects that may be coming on the market soon. That’s because they’re in continuous contact with potential sellers, having worked through tax returns, profit-and-loss statements, dispensing numbers and third-party plan reports to gain a deep understanding of the seller’s business and formulate an opinion of pharmacy value.

Nonetheless, bear in mind that an advisor’s primary role is to connect compatible buyers and sellers, with the ultimate goal of keeping stores independent. So, from a buyer’s perspective, the advisor brings a truly unbiased view and knowledge to the table to help the buying decision. And the extra advantage for the buyer is that there are no fees to pay or commissions that are extracted from the deal.

Here are some questions you can expect to be asked by an advisor who is making your needs a priority. You should begin thinking through these now so you can clearly identify and communicate what a promising pharmacy acquisition opportunity looks like in your mind.

• Have you targeted a specific geographic location for your acquisition?
  The most consistent opportunities will be found in—or within a reasonable drive of—urban areas.

• Are you most interested in an apothecary-type store or a full retail operation with a large front end?
  An apothecary store generally would have a smaller footprint and, accordingly, lower rent. On the other hand, a larger retail operation would allow you to diversify your revenue streams with other products or services.

• What service offerings are part of your business plan?
  There are limitless services you can provide in your future pharmacy to carve out a valuable niche in the market, from care-related offerings like immunizations and diagnostic testing to more universal conveniences like lottery sales and package mailing.

• Would you like to be in a free-standing building or a strip mall?
  Locations with 500 to 2,500 square feet of space tend to be a sweet spot for independent pharmacies. Larger spaces require more resources in terms of inventory and staff—not to mention greater, sustained foot traffic to support the business.

• Do you want to be near doctors’ offices or a medical campus?
  These facilities can be outstanding sources of referrals.

• Are you looking to buy a job or a business you can grow?
  An average pharmacy fills about 58,800 prescriptions per year.¹ You could probably survive at about half that level, but would only be covering your own salary and not generating enough income to reinvest in the business or withdraw as extra income. From a broader perspective, stores generating total revenue of $2 million to $2.5 million typically have enough cash flow to support business objectives beyond just covering bills.

• Do you have the funds available to complete the transaction?
  You’ll need to put down 10 to 20 percent of the total loan amount.

• What is your appetite for risk?
  In some cases, you need to be comfortable taking on chain stores and competing independent pharmacies within the market. You also need to be prepared to regain the trust of customers who may be driven away by the change in ownership.

Armed with this information, your advisor will then try to match your needs with relevant independent pharmacy listings. Once you start exploring those acquisition opportunities, you can lean on your advisor to answer critical, store-specific questions like these.

• Does the targeted store sell a lot of controlled drugs?
  Considering the nation’s opioid epidemic, a large percentage of cash prescriptions for opioids could be a red flag.

• Is the store for sale located in a “HEAT” zone?
  The federal Health Care Fraud Prevention Action Team (HEAT) combats fraud, waste and abuse among individuals who are illegally posing as healthcare providers or suppliers.² During a change of ownership, some third-party insurers in designated HEAT regions do not allow new owners to fill on their plans for a period ranging from 6 to 18 months. This could materially impact prescription volume and store profitability during the transition phase.

• Are reimbursement issues affecting the seller’s pharmacy?
  Understand the degree to which DIR fees are cutting into current profitability—and how they are trending into the future.
  
  

Prime opportunity

It’s often said that “great deals happen for good buyers.” Taking into account all the factors just discussed, you may find a pharmacy that checks every box on your wish list. But when a good opportunity comes along, multiple buyers are likely to want that store, too. The key as a buyer is being prepared to offer a price that will at least be near the top of the mix. At the same time, you need to understand the pharmacy’s real cash flow so that you’ll be able to pay back your loan and build on the business into the future.

One type of opportunity that offers great potential return on investment is a store whose owner is getting ready to retire after serving the community for 20 or 30 years. If the owner hasn’t kept up with emerging pharmacy trends in recent years, you may be the right candidate to come in, tighten up profit leakage and introduce engaging new services.

A qualified expert can put you in touch with such a prospect and guide you along the path to a successful pharmacy purchase.

<sup>1. National Community Pharmacists Association. 2019 NCPA Digest. http://www.ncpa.co/pdf/digest/2019/2019-digest.pdf

2. U.S. Department of Health and Human Services, Office of the Inspector General. Medicare Fraud Strike Force. https://oig.hhs.gov/fraud/strike-force</sup>