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You have agreed to sell... what next?

Selling a pharmacy can be a minefield but help is at hand in a book written by pharmacy sales expert Anne Hutchings. In the eleventh of 12 monthly extracts, Anne explains why completing the paperwork is more than a formality.

Agreeing to sell your pharmacy is only the beginning of the end. Once the sale has been agreed, it is essential to instruct a solicitor who is familiar with pharmacy sales, if you have not already done so. Go for experience over price, since an inexperienced solicitor can ultimately end up costing you more.

The next stage is to draw up the heads of terms. This document should spell out clearly the key terms of the deal so that there are no misunderstandings later on. Although this is not a binding agreement, it represents the intentions of both buyer and seller. It should include time scales for the sale and provision for the buyer to pay an up-front deposit if this is part of the deal.

You may wish to grant the buyer a period of exclusivity in return for the deposit.
This would normally be for three or four months, giving them time to do their due diligence and ensure their finance is available. Obtaining a deposit should indicate to you that the buyer is serious.

Due diligence

You should expect the buyer’s accountants to carry out financial due diligence on your business. Try and forward all the requested information to your solicitor on a timely basis, and make it clear and comprehensive.

If you have a landlord, your solicitor should approach them as early as possible after agreeing the sale for consent to assign the lease. This is an important point because it can take some time.

If you own the freehold and your intention is to set up a new lease for your buyer, your solicitor can draft this at the outset of the process. If you own the freehold and are including this in the sale, then be prepared for the buyer to require their own valuation of the property.

In almost every sale, the buyer’s lender will want to carry out a valuation of the pharmacy goodwill to ensure the business can support the loan amount. This valuation should also be carried out promptly at the outset of the sale to ensure that there are no issues with funding later on.

Legally binding

The sale and purchase agreement is legally binding once signed, so it is important to ensure it adequately protects your position. The buyer will require warranties and indemnities from you covering all aspects of the business.

Warranties are guarantees from you regarding the business and its assets at completion. If any of the warranties prove to be untrue, the buyer will have a right to claim against you, unless the matter has been disclosed before completion.

There should also be provisions limiting your liability if a claim is brought by the buyer. These limitations set restrictions on the circumstances when the buyer can bring a warranty claim (e.g. after a certain period of time). Indemnities establish the liability that can arise if problems are discovered after the sale has been completed.

Retention

With a company share sale, the buyer will often request a retention. This is where money is held back from the completion proceeds pending certain outcomes. There may be a retention until the final completion accounts are agreed, for example. The amount will depend on the negotiating skills of your advisers.

There may also be retention for a year or two of part of the sale proceeds in case any claims arise against the business you have sold. Again, the amount will depend on negotiation but it should not be more than 10 per cent of the sale price. Do not think that because you have agreed to the sale, completing the legal paperwork is just a formality. There is no guarantee at this stage that the sale will go through. The longer a sale drags on, the more likely it is to fail. I have known sales to fall through because:

  • The lengthy delay caused by inexperienced solicitors gave the buyer time to reconsider
  • An announcement by local doctors that they were moving caused the buyer to withdraw
  • The buyer’s finance was withdrawn by the bank because a third party landlord took too long to negotiate a new lease.

Other points

There are other points you might need to consider:

  • If you continue to work in the business following completion, the buyer may require you to sign up to new terms of employment
  • It will be necessary under TUPE regulations to consult with your employees before completion if the sale is not of a limited company
  • A stocktake is likely to be needed at, or soon after, completion. The buyer may ask for a cap to be put on the stock to be transferred. This can be negotiated but it is better to reach agreement as soon as possible so you have time to run down stock levels
  • The GPhC and NHS regional team must be notified of the sale and approve any transfer of ownership and ‘fitness to practise’ applications. Transfer of ownership will depend on whether the contract and premises are registered to a company or sole trader.

If the NHS contract is in the company name and you are selling the company, you should not need to transfer ownership. Where it is applicable, the transfer can take up to 90 days to be fully approved.

The longer a sale drags on, the more likely it is to fail


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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