RxLegacyPharmacy Ownership Overview
ACPE # 0130‐9999‐17‐074‐L04‐P&T Accredited for 2.5 CE Hours
June 8, 2017La Cantera Resort, San Antonio
June 8, 2017La Cantera Resort, San Antonio
Identify essential tasks in planning the purchase or sale of a pharmacy;
Explain how to engage in discussions with other parties in the pharmacy ownership process; and
Disclosure & Session Objectives
Amanda Fields is a paid employees of American Pharmacies. Conflict of interest: NoneLearning ObjectivesAt the end of this segment you will be able to:
Amanda Fields, APRx General [email protected] (preferred) | 877‐634‐5445
Pharmacy ownership program established in 2016 and powered by AmerisourceBergen
Sole objective: grow community pharmacy & strengthen the chain of independent ownership
Connects like‐minded buyers, sellers & pharmacy students Free resources, consultants & advice No exclusivity required All contacts & deliberations conducted in total confidence.
June 8, 2017La Cantera Resort, San Antonio
RxLegacy Addresses All Career Stages Longtime owners looking to retire/sell in short term
Experienced owners wanting to plan an exit strategy Owners wanting to expand/grow through purchasing Owners seeking a junior partner or investor/co‐owner Younger pharmacists seeking first ownership opportunity or
junior partnership Students exploring junior partnerships & future ownership
June 8, 2017La Cantera Resort, San Antonio
Team Role: Gather initial information & help establish goals Counsel best course of action throughout Match interested parties Advise/coach on discussions with other parties Obtain a meeting of the minds Provide ownership transition advice Interact with APRx sales team and other RxLegacy team
members to maintain momentum
RxLegacy Team Member Amanda Fields
June 8, 2017La Cantera Resort, San Antonio
Leads Pharmacy Ownership Program at AmerisourceBergen
Long history of brokerage success Advises both buyers & sellers Evaluation of pharmacy’s financials & operations Cash flow analysis Stellar financial intelligence specific to community
pharmacies
Team Member Charlie Le Bon
June 8, 2017La Cantera Resort, San Antonio
Pharmacy Ownership Consultant at AmerisourceBergen Pharmacist and pharmacy executive experience in chain
& community pharmacy Personally involved in the sale, purchase & acquisition of
more than 500 pharmacies Adept at reviewing financials, providing valuations,
matching interested parties, and advising them from start to finish
Team Member Bill LaRose
June 8, 2017La Cantera Resort, San Antonio
Managing Director at First Financial Bank Pharmacist and former pharmacy owner Expert financial counseling & resources Pharmacy‐specific financial expertise
Team Member Bob Graul
June 8, 2017La Cantera Resort, San Antonio
Pharmacy Transition StrategiesFor Buyers & SellersBill LaRose, AmerisourceBergen
June 8, 2017La Cantera Resort, San Antonio
Disclosure & Segment Objectives
Describe the ownership transition process & the roles of both buyers & sellers;
Identify the factors that influence pharmacy value in determining purchase price; and
Explain basic formulas & methodology for determining the selling price of a pharmacy.
Charlie Le Bon & Bill LaRose are paid employees of AmerisourceBergenConflict of interest: None
Learning ObjectivesAt the end of this segment you will be able to:
Charlie Le Bon, Director of Pharmacy [email protected] | 949.212.1788Bill LaRose, Pharmacy Ownership [email protected] | 201‐874‐9431
June 8, 2017La Cantera Resort, San Antonio
Bill LaRose ‐ Profile
Pharmacist: graduate of Philadelphia College of Pharmacy 28 years with CVS:
o Multi‐unit field ops at Zone, Region & Area levelso Specialty Pharmacyo Pharmacy Acquisitionso RE Development
Consulting Business (Acquisitions, Franchise Develop.) Joined ABDC as Pharmacy Ownership Consultant Involved in 500+ Pharmacy Transactions
June 8, 2017La Cantera Resort, San Antonio
Discussion Topics
Independent Pharmacy Today – Alive & Thriving Expectations for Selling / Buying a Pharmacy Transition Process Pharmacy Valuation – What’s the Store Worth? Structuring the Deal
June 8, 2017La Cantera Resort, San Antonio
Overview of the Marketplace(Independent Community Pharmacy Today)
About 22,400 Community Pharmacies in U.S. $81 Billion Marketplace Gross Margin = 20% ‐ 24% Average Annual Sales = $3.6 million
o 92% of Annual Sales (1.2 Billion Rxs) are “Pharmacy Sales”
o 200 scripts per day = 60,493 scripts annually on average
June 8, 2017La Cantera Resort, San Antonio
900 Pharmacies Transition a Year
45% of community pharmacies generate less than $2.4 million in gross sales per year
15% generate more than $6 million in gross sales per year 60% of owners are older than 55 Transition = sell to chain, independent or close doors 26% of independents have ownership in 2 or more stores 2/3 of all owners will transition over the next 10 years
June 8, 2017La Cantera Resort, San Antonio
One Day….
All Owners WILL Transition Out of Their Business
o By Choiceo By Circumstance
June 8, 2017La Cantera Resort, San Antonio
Do You Have an Exit Strategy?
5 – 10 years?2‐5 years?1‐2 years?
June 8, 2017La Cantera Resort, San Antonio
Sellers Must Have a Plan…..
Increase “Value” Create Team Get Educated Be prepared to answer…
June 8, 2017La Cantera Resort, San Antonio
What Makes a Pharmacy MORE Valuable?
Higher then average gross or net profits 25% gross margin, 10% or less payroll expense,
10% or more net income High volume, year‐over‐year growth trends Good record‐keeping Well‐managed & ‐trained staff Reasonable rent Modern, up‐to‐date pharmacy Solid business mix
June 8, 2017La Cantera Resort, San Antonio
What Makes a Pharmacy LESS Valuable?
Declining prescription counts, profits & margin Weak financial statements & poor record‐keeping Excessive rent Too many employees Poor workflow Out‐of‐date
June 8, 2017La Cantera Resort, San Antonio
What Is the Value of the Pharmacy?
Is it profitable? 3 key metrics: gross margin, labor expense and net
operating income Buyers are purchasing the ability to generate a future
economic return Any pharmacy is worth only what the bank is willing to
lend for its purchase
June 8, 2017La Cantera Resort, San Antonio
Value Continued……
Must be financeable and earn buyer(s) return on investment Allow debt repayment Lenders like to see a debt coverage ratio of 1.25 or higher Fair and equitable to both buyer & seller
June 8, 2017La Cantera Resort, San Antonio
Who are the Buyers?(More Buyers then Sellers)
First‐time pharmacy buyers; working at chain or independent (the “30‐something’s”)
Current owners looking to grow/expand through acquisition
Investment groups/ consortiums
Chains (National, Regional, Niche)
June 8, 2017La Cantera Resort, San Antonio
What Is the Time Frame to Buy?
Locating the right opportunityo Regiono Locationo Demographicso Identify a seller? Now what?o Approach, perform due
diligence and make an offer
June 8, 2017La Cantera Resort, San Antonio
Buyers Must Have a Plan….
Must Have:o Good credito Valid Pharmacist License (or
access to one)o Passion & Desire to Own a
Businesso Had a Great Mentoro Cash Available for Equityo Understanding of Financial
Performance & Benchmarking
June 8, 2017La Cantera Resort, San Antonio
Building an Acquisition Plan
What is the pharmacy worth?
Financially document and prove the value
Perform due diligence Submit an offer
o Letter of Intento Purchase and Sales
Agreemento Use the advice of
industry professionals?
June 8, 2017La Cantera Resort, San Antonio
Common Valuation Methods
1. % of Gross Sales (18% ‐ 25%)2. 1‐Year Gross Margin $ (20% ‐ 24% of sales)3. Multiple of Owner’s Discretionary Income
(2.5 to 3.5 X normalized EDITDA)4. Dollars per Annualized Scripts
($10 ‐ $15 per “retained” Script)5. ROI (generate a minimum of 10% cash on cash return on
your up‐front investment)
June 8, 2017La Cantera Resort, San Antonio
Performing a ValuationWhat do a buyer, accountant & lender need to review? 3 years of Profit and Loss Statements/Balance Sheets 3 years of Tax Returns Pharmacy Prescription Reports
o RX Sales Report (Scripts & Payers by Plan Code)o Top 100 Drugs Dispensedo Generic vs. Brand / New vs. Refillo Seller’s cost of goods (purchasing power)o Rebateso Ability to recast/normalize financial statements
accordingly for a new owner
June 8, 2017La Cantera Resort, San Antonio
The Buyer’s Role Execute Non‐Disclosure Agreement
o Keep all information completely confidential Convince Seller You Can Continue Legacy in Community
o Staff and patient continuity Obtain Financing & Funds to Complete Acquisition
o Credit | Collateral | Character | Competence | Cash Flow Perform & Coordinate All Duties Required of a Buyer
o Draft a purchase agreement (legal counsel)
o Complete wholesaler credit application
o Complete necessary licensing applications
June 8, 2017La Cantera Resort, San Antonio
The Seller’s Role
Justify the asking or purchase price Disclose all financial documentation, prescription infor‐
mation, and general business & operation information Demonstrate to the buyer that they will be able to earn a
pharmacist wage, pay their debt, build equity & grow long‐ term wealth
Seamless transition process (training period)
June 8, 2017La Cantera Resort, San Antonio
The Actual Transition
Letter of Intent or term sheet Asset purchase agreement or stock purchase agreement Buyer to obtain a lease or purchase real estate POA to operate under seller’s provider numbers Apply for necessary licenses: State Board, third‐party
contracting, DEA, NPI/NCPDP, NABP, Medicare & Medicaid Third‐party inventory counting service Employee transition strategy Transfer of funds (escrow or attorney or lender)
June 8, 2017La Cantera Resort, San Antonio
Typical Purchase Structure
Buyer purchases the assets of the businesso Goodwill (all intangibles)o Furniture, fixture equipment (tangible)o Covenant not to competeo Inventory
Buyer obtains financing (SBA pharmacy lenders) Buyer obtains working capital
June 8, 2017La Cantera Resort, San Antonio
Non‐Traditional Purchases
Seller‐Financed Transaction Stock Purchase Buy into Partnership Junior Partnership Purchase Files (typically asset purchase) Employee Stock Ownership Plan
o Pharmacy staff purchases the business
June 8, 2017La Cantera Resort, San Antonio
Sources of Financing
Wholesaler Finance Programo Shorter terms (5‐7 years)o Higher interest rates (7% ‐ 10%)o High downpayment
SBA Pharmacy Lenderso 10‐year termso Competitive rates (5% ‐ 6%)o Low downpayment
June 8, 2017La Cantera Resort, San Antonio
ExampleSales ‐ Pharmacy $ 3,410,404 Sales ‐ Front‐End $ 267,235 Sales ‐ Other $ ‐TOTAL GROSS SALES $ 3,677,639
COS ‐ Pharmacy $ 2,686,241 COS ‐ Front‐End $ 170,633 COS ‐ Other $ ‐TOTAL COST OF SALES $ 2,856,874 Cost of Sales % 77.7%
GROSS MARGIN $ $ 820,765 Gross Margin % 22.3%
TOTAL OPERATING EXPENSES $ 735,527 % of Revenue 20%
NET INCOME $ 85,238 % of Revenue 2%
ADJUSTED EBITDA $ 238,238 % of Revenue 6%
APPROXIMATE INVENTORY $ 515,000
Gross Sales $ 3,677,639
Low Value20% $ 747,212
Medium Value
22% $ 820,765 High Value
24% $ 894,318
EBITDA $ 238,238
Low Value2.5 $ 595,595
Medium value3 $ 714,714
High Value3.5 $ 833,833
Annual Rx's Filled 62,000
Low Value$12.24 $ 758,765
Medium value
$13.24 $ 820,765 High Value
$14.24 $ 882,765
Low ValueMethod's #1,#2,#3 $ 700,524 Medium ValueMethod's #1,#2,#3 $ 785,415 High ValueMethod's #1,#2,#3 $ 870,305
June 8, 2017La Cantera Resort, San Antonio
Pharmacy Financing
Topics How to Finance SBA 5 Cs of Banking Types of loans Example
June 8, 2017La Cantera Resort, San Antonio
Bob Graul, First Financial Bank
Identify types of loans available to pharmacy owners Explain the differences between conventional loans and Small Business Administration (SBA) loans Describe the application process for SBA loans to finance pharmacy acquisitions and start‐ups.
Disclosure & Learning Objectives
June 8, 2017La Cantera Resort, San Antonio
Bob Graul is a paid employee of First Financial BankConflict of interest: Employee of commercial pharmacy lender
Learning ObjectivesAt the end of this segment you will be able to:
Bob Graul, Managing Director, Professional Services Division, [email protected] | 775‐554‐8064
How to Finance
Private Equity Loans Commercial Bank Lending Wholesaler Loans SBA Loans
June 8, 2017La Cantera Resort, San Antonio
The Small Business Adminstration Founded in 1953 Four functions:
o Access to Capital (Business Financing)o Entrepreneurial Development (Education, Information,
Technical Assistance & Training)o Government Contracting (Federal Procurement)o Advocacy (Voice for Small Business)
June 8, 2017La Cantera Resort, San Antonio
The Small Business Administration
MissionThe U.S. Small Business Administration has delivered millions of loans, loan guarantees, contracts, counseling sessions & other forms of assistance to small businesses.
June 8, 2017La Cantera Resort, San Antonio
SBA Guaranteed Loan ProgramsDebt Financing
SBA does not directly lend money. SBA sets guidelines for loans; banks lend the money. SBA partners with lenders to guarantee repayment. The loan is a commercial loan structured according to SBA
requirements with an SBA guaranty Preferred Lender Participant –Some lenders are preferred
lender participants
June 8, 2017La Cantera Resort, San Antonio
7(a) Loan Program Eligibility
Use alternative financial resources, including personal assets, before seeking financial assistance.
Be able to demonstrate a need for the loan proceeds.
Use the funds for a sound business purpose.
Not be delinquent on any existing debt obligations to the U.S. government.
June 8, 2017La Cantera Resort, San Antonio
SBA Business Size Standards
Is your business consid‐ered “Small” by the SBA? You must be defined as
a small business when submitting a proposal for SBA financing.
SBA uses the North American Industry Classification System(NAICS) as the basis for its size standards.
June 8, 2017La Cantera Resort, San Antonio
SBA Size Standards
What is a Small Business Size Standard? Usually no. of employees or average annual receipts. For Pharmacies and Drug Stores (NAICS code 446110),
size standard is based on average annual gross income.
Size standard for Pharmacies & Drug Stores: $27,500,000.
June 8, 2017La Cantera Resort, San Antonio
SBA Lending
SBA fees – Borrower will pay a guarantee fee depending on the loan amount, usually rolled into the loan
Application Personal Financial
Statement Last three years of
personal tax returns
June 8, 2017La Cantera Resort, San Antonio
SBA Lending
AcquisitionsPharmacy Questionnaire Last three years of business tax returns and most recent financial statement
Start‐upBusiness Plan with 3‐year projections
June 8, 2017La Cantera Resort, San Antonio
The Five C’s of Banking
CHARACTER – Can you run the run the business? CREDIT – Generally looking for 700 score or better CASH FLOW
o Acquisition – Will historical cash flows support the business, the debt and pay you a reasonable pharmacist salary?
o Startup – Are the projections reasonable? Do they cover expenses, the debt and pay you a salary?
CAPITAL – Do you have some cash to bring to the table? COLLATERAL – Very important to a conventional lender; not as
important to a SBA lender
June 8, 2017La Cantera Resort, San Antonio
Types of Loans
Transition Start‐Up Working Capital (Expansion) File Buy Partner Buyout Refinance New Construction Commercial Real Estate Purchases
June 8, 2017La Cantera Resort, San Antonio
Example Pharmacy Acquisition
Total Sales: $4,000,000Cost of Goods Sold: $ 3,100,000Gross Profit: $ 900,000Interest Expense: $ 25,000Depreciation Expense: $ 55,000Amortization Expense: $ 15,000General Admin. Expenses: $ 655,000Owner’s Compensation: $ 160,000___________________________________Net Income: $ 85,000
June 8, 2017La Cantera Resort, San Antonio
Seller’s Discretionary Earnings multiplied by 2.5 equals Goodwill/Rx Files
Net Income: ($85,000 + Interest $25,000 + Depreciation $55,000 + Amortization $15,000 + Owner Salary $160,000) = $340,000
SDE = $340,000 x 2.5 = $850,000 + $350,000 (inventory) = $1,200,000 Total Purchase Price
Buyer’s Cash: $25,000 (2% of purchase price) Seller Financing: $275,000 (23% of purchase price) Bank Loan: $1,150,000 (includes 75% of purchase price,
working capital and loan fees and closing costs)
Pharmacy Acquisition (continued)
June 8, 2017La Cantera Resort, San Antonio
Panel Discussion With All Presenters
June 8, 2017La Cantera Resort, San Antonio
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