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How many offers should you expect?

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How many offers should you expect?

Selling a pharmacy can be a minefield but help is at hand in a book written by pharmacy sales expert Anne Hutchings. In the tenth of 12 monthly extracts, Anne explains the factors that can influence the offers you will get.

The number of offers you can expect when you put your business up for sale will depend on factors such as how the business is marketed and presented. It will also depend on:

  • The area in which you are located in the UK and where your pharmacy is located in relation to GP surgeries and competitors
  • How your turnover is made up. Is it the usual 90:10 ratio of NHS-to-counter business, or something different?
  • Whether the pharmacy is affected by local developments, which could have a positive or negative impact on the business.

The guide price

You should keep an open mind about the final price your pharmacy will fetch. If you can generate a number of offers, the price can go much higher than the guide price. For that reason it is sensible to set a guide price and seek offers in excess of that.

To put this in perspective, imagine going to an auction to buy a house. The auctioneer will set a guide price but if you were to ask him beforehand what price a particular property will sell for, he/she would not be able to tell you.

Before calling in offers you should allow time for potential buyers to receive all relevant information, and have a chance to view the pharmacy and meet the vendor. Ideally your agent should be looking to call in offers within a few weeks of the business being marketed.

Number of offers

In a sellers’ market the number of offers received on a pharmacy sale is typically around four or five. Depending on the level of interest you could receive as many as 15 offers. It makes a big difference if the pharmacy is marketed at the right price level, since if it is overpriced interest is likely to be minimal. Where there is a lot of interest I will often have two rounds of offers so that buyers can increase their original offer if they wish to.

It is always an advantage to have a few offers on the table. If a ‘top offer’ doesn’t materialise you then have other buyers to fall back on. It also helps prevent the successful bidder from trying to introduce any unreasonable terms into the contract of sale.

If they are aware that other potential purchasers are in the wings, they will know that you are less likely to tolerate unreasonable terms. Unfortunately some pharmacies only generate two or three offers. In these cases I would usually invite initial offers to come in by a specific date and then negotiate individually with the buyers to achieve their best and final offer.

How do buyers view the offers process?

Buyers don’t like bidding against each other as they usually end up paying a higher price than if they were negotiating on a one-to-one basis. A buyer wants to buy your pharmacy at the lowest possible price while negotiating the best terms for themselves. Who is in a stronger negotiating position – you or the buyer?

If you have more than one offer you are in a good position – and with multiple offers you really are in a position of power. Buyers will seek to discover the minimum price that you are prepared to accept, but you should resist telling them. Once you have set the bar, a buyer will never go above this price point.

The negotiating tactics buyers employ vary but generally they won’t submit their best price in their initial offer. Don’t be upset if you receive a low offer: it may be that the buyer genuinely doesn’t think your pharmacy is worth as much as you are asking, or they may be seeing how low a price you will accept. Most buyers will hold back their offer until the closing date.

However, with two rounds for offers it would be unusual if noone increased their offer in the second round. This means that if several people have submitted offers in round one, there is still the prospect of negotiating a higher price. Sometimes buyers try to apply pressure by putting a proviso on their offer; for example saying that they need an answer within five days or the offer will be withdrawn.

My job then is to weigh up the situation and try to gauge whether they are bluffing or if there is a genuine reason why the offer is time limited. They could, for example, be in negotiations with another pharmacy and have to make a decision about where to commit.

What should the offer look like?

I insist that offers are submitted in a similar format to allow for easy comparison and to prevent any misunderstandings. You need to know exactly what the buyer is offering to buy: are they making an offer for the shares in your company or just the assets in the business, and if so which assets?

The offer for a pharmacy business should generally be for cash on completion of sale. Pharmacy sales tend to differ from other types of business sale where a sum is paid up front and the remainder over a period of years dependant on various factors. Occasionally there may be an agreement to stage payments over a period of years but this would normally only be put in place where there is a problem that is likely to affect the future of the business.

The choice may be either to accept a low offer, or try and structure a payment schedule dependent on what happens to the business. At the offer stage it is important to agree the big points such as the price, what is included, the basic structure of the sale, timescales and a target completion date. Don’t get bogged down with minor details – they can be ironed out later.

Who is in a stronger negotiating position – you or the buyer?

 


Anne Hutchings has been dealing with community pharmacists for over 20 years and has built up her company, Hutchings Consultants, to be the UK’s largest independent pharmacy sales agency. ‘Selling your pharmacy for all it’s worth’ (£12) can be ordered from Amazon (ISBN 9781 7846 22411) or from Hutchings Consultants. For a free copy (while stocks last) complete the form online at hutchings-pharmacysales. com or send a cheque for £12 (payable to Hutchings Consultants) to Hutchings Consultants Ltd, Maple House, 53-55 Woodside Road, Amersham, Bucks HP6 6AA
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