Are you thinking of buying a pharmacy?
Modiplus • June 10, 2022
Finance experts Umesh Modi and Vinku Shah advise first-time buyers on the steps they should take to make the acquisition a smooth process…
Acquiring the first pharmacy can be a challenge to most pharmacists especially when they do not have the necessary skill in reading the numbers presented in terms of the target pharmacy’s performance and how to interpret these in order to arrive at a valuation for the purpose of submitting an offer. Without the guidance of a specialist accountant in community pharmacy, one of the major risks is that one could end up paying more than what the pharmacy is worth. Once the offer is accepted, there are other challenges to overcome to get the deal over the line.
Our sister company Silver Levene LLP, a chartered accountancy firm with a specialist community pharmacy department, can help make the acquisition a smooth process for you:
1) Assessing the risk
Once the target pharmacy has been identified, we can assist with assessing the risks and advise if it would be a viable investment so that you are able to make an informed decision. At this point, we will gain an understanding of your knowledge of the target pharmacy and be able to provide you with further guidance on income/profit generation and growth potential.
2) The valuation of the business
Based on the information already provided by the seller’s agents, we may request further data in order to work out a valuation for the pharmacy and provide you with a range of offer to submit. This is to ensure that you are not overpaying for the target pharmacy and bidding within sensible parameters.
3) The negotiation process
Sometimes when the initial offer is not accepted, a negotiation may take place and we would provide guidance on how to go about it with a view to successfully bidding for the target pharmacy.
4) Financial and tax advice whether an asset purchase or a company purchase
The target pharmacy may be sold as an asset sale which usually happens when a chain is selling one of its pharmacies or it could be a company sale whereby the vendor(s) may own only one pharmacy and are selling the company’s shares (this is common when the vendor(s) are retiring pharmacists).
Each of these transactions will have their own financial and tax implications that will need to be considered at the time of acquisition and we will provide sound advice in either case with a view to maximising your tax benefit and protecting you from over-paying through inadequate due diligence.
5) Accounts and tax due diligence
This is the crux of the whole transaction and we advise all our clients (first time buyers as well as those expanding) not to compromise on this. We carry out a thorough and an in-depth review of the accounting records and information provided by the vendors, conduct our own independent checks to support the figures presented and liaise with our client throughout highlighting areas of concern. One of the major risks, for example, in a company purchase is that there may be undisclosed liabilities or overstated assets and if this is not accurately verified, you could end up paying a lot more to the vendors potentially leading to long standing disputes to recover sums overpaid. Litigation could take years, is a distraction and very costly indeed. It is far better to seek professional advice from the outset from an experienced firm then to have to face a dispute after the acquisition.
6) Financial and tax aspects of the asset/share purchase agreement
The asset/share purchase agreement is a binding agreement between the parties encapsulating the mechanism of the sale price, payment terms, financial and tax warranties, indemnities and tax covenant etc. We review these agreements in detail, particularly to the financial and tax matters to ensure that and any risks are identified and mitigated through requesting relevant clauses be inserted/removed in the agreement.
7) Loan to finance the purchase
The acquisition is most likely to be financed by borrowing from lenders and we have a panel of pharmacy specialist lenders that we introduce our clients to. The lenders understand the community pharmacy business and are willing to work with ambitious pharmacists/entrepreneurs and to help them grow. As we conduct considerable business with many of these lenders, we are often able to negotiate better terms for our clients. The lending fee or interest saving can sometimes more than cover the cost of our services to you. Each case is judged on the creditworthiness/security of the borrower.
8) Business plans, cashflow and profit forecasts
As part of our complete due diligence package, we assist in drawing up the business plans, cashflow and profit forecasts which will be required by the lenders to secure the finance for the acquisition.
9) VAT/PAYE registrations
Within 4 weeks of completion date, we will assist you with registration with the relevant authorities for all taxes for example VAT, PAYE, Self-assessment, etc.
10) On-going accounting/tax services
Post completion, we offer a range of compliance services like bookkeeping, MTD compliant VAT returns, payroll, management accounts, annual accounts, corporation tax, personal tax, tax planning, financial services etc. You will have a dedicated and well-trained team dealing with your all your accounting and tax requirements.
11) Recommending pharmacy specialist service providers
We deal with several pharmacy specialist service providers such as solicitors, lenders, stock takers, etc that we introduce to our clients. We recommend using professionals that specialise in community pharmacy as they understand the business and its requirements thereby saving valuable time and costs.
As daunting as it may sound, buying your first pharmacy need not be a complicated affair as long as you use the right professionals who may seem slightly more expensive at the outset but will save you a lot of time and cost in the long run as they will be able to deal with any complications of the transaction efficiently.
This article is based on current legislation and practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here. Should you require any advice please do not hesitate to contact us.
We trust you are enjoying the warm weather as we welcome you to our Summer Newsletter! Pharmacy market and selling activity The trend in the pharmacy sales market shows a continued activity with a mix of buyers and sellers, including large multiples and independent owners. We have seen large multiples disposing branches and there’s also a rise in first time buyers and small and mid-sized groups acquiring. Pharmacy contract and increase in funding The March 2025 funding deal looks promising and much needed boost for community pharmacies and a step in right direction compared to previous years. The Community Pharmacy Contractual Framework (CPCF) budget is to £3.073 billion for the 2025 / 2026 financial year, which will provide an uplift of over 30% compared to previous year. Additionally, an extra £215 million will be directed towards expanding existing Pharmacy First and other services. (Source: Community Pharmacy England) Outlook for pharmacies · Uncertainty in the budget – the upcoming autumn budget is expected to influence future activity in the pharmacy sales market. · Integration of technology and AI – technology, including AI and automation is playing a larger role in pharmacy operations and customer experience. · Growing role of pharmacies – pharmacies are taking on a larger role which may lead to further changes in the market. Factors influencing the sales market · Government policies – government regulations, particularly around funding and potential changes to CGT rules, can impact buying and selling decisions. · Economic growth and healthcare spending – increasing healthcare spending and an aging population are driving demand for pharmacy services. · Online pharmacy growth – the online pharmacy market is expanding, with companies like Pharmacy2U and others gaining market share. · Competition from online pharmacies – online pharmacies are becoming more popular, which may affect the traditional pharmacy model. Simplifying the sale of pharmacy and our checklist for a successful sale Selling a pharmacy can be daunting due to regulatory, financial and operational factors, but with the right strategy, we can help you streamline the process and avoid common pitfalls. Here is our recommendation for a smoother sale: - 1. Prepare early and get organised – collate key documents for the sale such as accounts, FP34s, VAT, returns, lease agreements, staff contract and compliance certificates. 2. Valuation – use pharmacy specialist agents to assess the value of your pharmacy based on profit multiples, dispensing volume etc (EBITDA workings). 3. Decide on the sale type – asset sale or company share sale where your accountant will be best to guide you. 4. Choose the right advisors – Broker helps you market the pharmacy and find a buyer. Please consider appointing a pharmacy specialist accountant and solicitor who have expertise to guide you through the whole sale process to completion. 5. Marketing the pharmacy – appoint a pharmacy specific broker such as Modiplus who will market your pharmacy in confidence and discreet. All buyers are vetted for funding and sign our confidentiality agreement allowing them to share sales information only with the bank, their accountant and solicitor. 6. Due diligence – you will be asked to use digital data rooms to share financials, FP34s, supplier contracts etc. Be transparent to disclose everything upfront to avoid delays or warranty claims. 7. Handle property efficiently – if leased, ensure that there’s at least 10 years left or obtain an extension. If freehold owned, prepare to sale the freehold or grant a new lease to the buyer. Please ensure lease terms meet buyer’s lender requirements. 8. Navigate NHS and GPhC requirements – For an asset sale, buyer must apply for transfer of NHS contract which usually takes between 2 to 4 months. For a share sale, no NHS approval is needed, however, notify NHS and GPhC of director / superintendent changes within 30 days. 9. Completion and handover – sign a Sale Purchase Agreement (SPA) or an Asset Purchase Agreement (APA), and hand over to the buyer. Other exciting news As we continue to grow, we are pleased to announce that our associated company Silver Levene was acquired by Xeinadin Group , a top 20 accountancy and business advisory firm in the UK. We highly recommend their pharmacy team of accountants with over 35 years of experience providing specialist accounting, tax and other advisory services to community pharmacies and pharmacists. For more information, please contact the pharmacy partners Mr Vinku Shah or Mr Shivam Modi on 020 7383 3200. Looking further ahead, we will be at The Pharmacy Show at NEC Birmingham on 12 and 13 October 2025 . If you are thinking of selling or buying a pharmacy, or looking for specialist pharmacy accountancy and tax advice, our team will be happy to discuss options with you at stand number M20 located next to the business theatre. Last month we participated with our associated company Silver Levene – A Xeinadin Company in the annual 10km London Legal Walk. The charity raised c£1m to support communities’ most vulnerable people and we thank you for your continued donations to support such a good cause. Legal and financial advisors Please engage a pharmacy specialist legal and financial advisor who will guide you through the process and assist you with any complex issues such as tax, legal contracts, etc. If you would like to sell/buy a pharmacy, need accounting or tax advice through our associated company Silver Levene – A Xeinadin Company, please contact us on 020 7383 3200. We have been providing specialist accounting and tax advisory services to community pharmacy for over 35 years. Your query will be directed to the right person. Silver Levene - A Xeinadin Company offers fixed price packages for accounting and tax services as well as valuations, cashflow and profit forecasts, raising loan finance, due diligence and accountancy work for asset and company sale transactions. Thinking of selling or buying? If you would like a free valuation or to talk about how you could achieve a fantastic price for your pharmacy, please do contact us on our direct dial number 020 7380 3446 and ask for Sanja . We would welcome the opportunity to have a chat with you. We look forward to hearing from you. This article is based on current legislation and practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here.
Welcome to our Winter Newsletter! Pharmacy market trend and buyers’ appetite If you are thinking of selling your pharmacy, there is still a demand for pharmacies across the country as the market remains buoyant. The pharmacy market has seen an increase in the number of pharmacies entering the market and completed sales. This is driven by economic pressures, fiscal policies, lack of funding, and exit of larger multiples from the market, such as Lloyds Pharmacy and Boots, which has led to the rise of independents and consolidations. The appetite remains strong from the first-time buyers, with independent and smaller chains the most active in the pharmacy acquisitions. Valuation calculations We have also seen the valuation of pharmacies improving, and on average we are achieving a goodwill price of 85p to 90p in £1 of turnover for standard hour contracts. Demand for pharmacies with a turnover of more than £750k to £1.5m with healthy profits is particularly attractive for the first-time acquisitions or an existing independent operator looking to expand. Below is a range of estimated valuations, if you are looking to sell: -
Welcome to our Summer Newsletter and we trust that you are enjoying the late summer weather! This summer has been extraordinary so far, full of sporting events such as football, tennis, cricket and the Olympic games! We have been very busy in the last quarter, whereby we have seen the first-time buyer appetite remain strong. Similarly, we have seen an increase in the number of sales enquiries of smaller pharmacies while others are holding off awaiting the outcome of the new funding and success of Pharmacy First scheme. On average we are achieving goodwill price of between 85p to 90p in £1 of turnover at present. The average profit margin has shown an improvement to 32% despite medicine shortages. Data from Pharmacy First (NHSBSA) The launch of the Pharmacy First has gone off with a positive start, it has been very encouraging to see so many patients benefiting from this scheme, and your exceptional efforts in delivering these services have been commendable. However, we note that monthly payments are still critical, and concur that it is completely unreasonable for pharmacy to be penalised financially for the NHS’ failure to drive public and GP referrals. The NHS Business Services Authority (NHSBSA) has released figures for the Pharmacy First Service covering the period of February to April 2024 as follows: -
