Planning an Exit Strategy for Pharmacy Owners

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Planning an Exit Strategy for Pharmacy Owners Powered By Docstoc
					Pharmacy Owner’s Guide
   To Exit Strategies

           Presented by:
   Guy W. Stillwell, R.Ph.
  Pharmacy Consulting Associates, Inc.
 Stock Holder: PCA-Pharmacy Consulting
 Associates, Inc. / President
              Program Outline
 Market Trends            Preparing To Market
                            Your Pharmacy
 Timing Considerations
                           Professional Resources
 Market Valuation
                           Owner Financing/
 Potential Buyers
                            Junior Partnership

                           The Selling Process
                 Market Trends
       Is Independent Pharmacy Strong Again?
 1985-1998 : Independent Pharmacy decreased by
    8,000 units
   1999-2005 : Independent Pharmacy decreased by
    1,700 units
   2004-2006 : Independent Pharmacy decreased by
    900 units
   2007-2009: Independent Pharmacy decreased by
    770 units
   The strength of Independent Ownership
              Market Trends
             Transfer of Ownership

 Pharmacists are becoming more interested in
 Chain file buys are no longer your only
 Metro community pharmacy owners are
  challenged by not having full access to
 Are smaller community pharmacies able to
  attract young healthcare professionals?
               Market Trends
               Where are we today?

 Independent Pharmacy Projections for 2010

 Metro vs. Rural Trends

 The Future
     Pharmacy Market Values
           Timing Considerations
          The 5-10 Year Planning Process
 Potential Buyers
     Junior Partner
     Key Employee
 Lease Terms
 Corporate Structure
     C-Corp
     S-Corp
           Timing Considerations
           The 3-5 Year Planning Process

 Financial Metrics
     Balance Sheet
     P&L
     Cash Flow
 Market Valuation
     Industry Valuation Metrics
     Cash Flow Analysis
     Buyer’s ROIC/ROCC
     Obtain Expert Advice
             Timing Considerations
             The 3-5 Year Planning Process

Operational Factors Affecting Market Value
       Private Charging
       Unit Dose Packaging
       Delivery Service
       Niche Services
            Compounding
            DME
            Specialty Pharmacy
            Nursing Home
          Timing Considerations
          The One Year Planning Process
 Market Valuation
 Identify Buyers
    Exception: JP Program needs to be
     established 5-10 years prior to transfer date
 Obtain Expert Advice
    Accountant
    Legal Counsel
    Business Consultant specializing in Pharmacy
     acquisitions and mergers (The buy/sell
              The Market Valuation
              What is My Pharmacy Worth?

 Industry Metrics
     $/Rx plus Inventory
          Range: $0-$30/Rx
     Multiple of Net Income
          Range: 0-5x Net Income
     % of Sales plus Inventory
          Range: 0%-40% of Total Sales
           The Market Valuation
           What is My Pharmacy Worth?

 Why the Metrics Do Not Work
     Ranges are Variable
     Standard Metrics are Unreliable
     Lack Specific Market and Pharmacy Data
 How to Understand the Metric Values for
  Your Pharmacy
     Know the Market
     Engage Expert Pharmacy Appraisal
              The Market Valuation
              What is My Pharmacy Worth?

 Buyer’s Perspective
     Continuation of Business
          Cash Flow
          ROIC/ROCC
          Financing
     File Purchase
          Retention
          Operational Blending
          ROIC
             Potential Buyers
        Identify all Buyers in the Market

 Key Employees
 Local Independents
 Regional Independents
 Independent Pharmacy Investors
 Chain Pharmacies
 Specialty Pharmacy Operations
               Potential Buyers
        Engaging All Your Buyer Resources

 Explore all of your options

 Strategically weigh the pros and cons
     Independent

     Chains
 Preparing To Market Your Pharmacy
  Protecting your Business and Maximizing Value

 Confidentiality and Non-Disclosure
 Providing Documentation-The Presentation
 Notification of Staff, Family, and Friends
 Engage Expert Assistance
         Professional Resources
 Legal Counsel
 Accountant
     Limited Knowledge Regarding Pharmacies
 Business Consultant
     Expert on Pharmacy Valuation
     Increases Potential Buyer Pool
     Minimizes Your Worry – Manage Entire
     Maximizes Your Value – Expert Negotiations
              The Selling Process
       Critical Steps in Maximizing Your Value

 Strategically Provide Documentation based
  on Buyer’s Due Diligence
     Only provide exactly what is requested
     Obtain LOI prior to full disclosure
     Understand Buyer’s operation, needs, and
     Understand Buyer’s financial position
     Does Buyer’s financial position facilitate sale
             The Selling Process
       Critical Steps in Maximizing Your Value

 The Asset Purchase Agreement (APA)
     Stock Sale vs. Asset Sale
     Asset Allocation
     “Going Concern” vs. “File Buy”
     Lease Assignment or Restrictions
     Prescription Retention Holdbacks
     UCC (Liens) Filings
                The Selling Process
       Critical Steps in Maximizing Your Value

 The Non-Compete Agreement
     Determination of Restrictions
          Term
          Geographic Radius
          Seller’s Plans
     Determination of Value
          Corporate Structure
          Paid to Seller Personally
          Tax Concerns
                The Selling Process
                         Final Steps

 Preparing for the Closing Date
     Removal of Buyer’s Contingencies
     Regulatory Notifications
          BOP
          DEA
          Medicaid
          Medicare
     Inventory
          Dating
          Inventory Level
  Owner Financing/Junior Partnership
               Is Owner Financing for Me?

 Owner Financing
   Security Positions
           Bank is always first
           Personal Guarantees & Cross Collateral
      Risks
           Default
      Benefits
           Increases Potential Buyers
           Possible Tax Benefits
           Provides “Bridge Financing” to Bank Loans
 Owner Financing/Junior Partnership
           Is a Junior Partnership Right for Me?

 Junior Partnership
     Tax Advantages
     Available Programs
     Key Employee
          Confidence
          Trust
          Ability
Questions and Answers

   Additional Questions
    Contact Information:
     Guy Stillwell, R.Ph.
      (651) 270-0038

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