Navigating Pharmacy Deals: The Power of a Fairness Opinion
July 20, 2023
You have put up your pharmacy for sale and started attracting potential buyers. One makes an offer, and it looks fair – but fair for whom?
A pharmacy you have had your eye on for a long time finally goes on the market, and the seller states their price. This is your chance to branch out on your own or expand your operations. But is the pharmacy really worth the asking price?
A large corporate chain makes an unsolicited offer for your pharmacy. It looks generous, but you don’t fully understand the conditions attached. What do they mean for you?
In each of the above scenarios – and plenty of others – pharmacist-owners who are considering selling their business or buying a new one can turn to a fairness opinion for answers.
What is a fairness opinion? It’s a report prepared by a professional third party (neither the buyer nor the seller) that evaluates a proposed acquisition and gives an opinion as to whether the offer is fair.
A fairness opinion can give a seller insight into whether an offer is commensurate with the value of the business, and it can give a buyer the same insight viz-a-viz asking price.
But a good fairness opinion, prepared by an experienced, accredited business valuator, will go beyond the straight-up financial aspects of an offer. It will also assess the terms of the proposed deal, which can include items such as earn-outs, vendor financing, due diligence requirements, deal structure (share or asset sale) and transitional terms (regarding staffing, leases, etc.), among a host of others.
In short, whether you are buying or selling a pharmacy business, a fairness opinion can give answers to what you don’t know – and identify areas where you don’t know what you don’t know.
Unfortunately, most business acquisitions are completed without a proper valuation. While corporate acquirers have a team of experts on hand to conduct an extensive review of an intended purchase, independent buyers usually use outdated “rules of thumb” to estimate a pharmacy’s value.
What is even more tragic is that independent pharmacist-owners often accept such seat-of-the-pants offers after a quick negotiation and believe they have received a good price for their business.
Perhaps they have. But if they don’t have a solid evidence- and experience-based idea of their pharmacy’s value, they may never really know.
Concerns can also arise even when a large corporate acquirer comes forward with an offer based on its own, presumably well-researched estimate of the independent pharmacy’s value.
The offered price might look good, but it might also come with terms and conditions that could subtract from the money the pharmacist-owner ultimately receives – or might cause unforeseen headaches and hitches down the road.
Understanding these terms, their risks and their potential costs can make the difference between a successful transition and a transactional nightmare.
And remember, as helpful as a corporate acquirer usually wants to be when dealing with an independent pharmacist-owner, it is “in it to win it” at the end of the day.
So here is our advice, based on decades of experience as business transaction advisors in the pharmacy industry: If you receive an unsolicited offer for your pharmacy, or are considering buying a pharmacy business, engage an experienced valuator to give you a fairness opinion.
Don’t go it alone, and don’t leave yourself guessing. The worst time to find out you sold your pharmacy for too little, or paid too much for one, is after the deal is done.
