First published in ‘The Pharmacist’ magazine click here to read the full article

1. What checks do you need to do on your target business?

You should ensure that you take specialist advice from professionals that understand the pharmacy sector and involve them from the start.  How can you tell if your lawyer understands your sector?  Ask questions. 

How many pharmaceutical transactions have they done in the last 12 months?  Ask them about category M and how this may impact on the process.  Ask them how they would tailor the contract to protect the specific sector issues.

2. Who do you need to assist on your sale and purchase?
If you are thinking of buying a business, you need to be sure that your target business is investigated thoroughly by your advisors (both financial and legal).  It is usual for the financial due diligence or investigation to precede the legal investigations.  It is usual to do the financial due diligence first to check that the numbers add up before incurring legal costs.

3. Do you need to set up a new company to purchase?
Get the structure of your purchase right.  Should you buy in your own name or should you think about utilising a new company formed for the purpose?  Buying and taking a loan in your own name may mean costly double taxation i.e. extracting sums from the company usually by way of dividends to make repayments on the loan.  Secondly, loans taken out in your own name may not attract full tax relief meaning potentially tens of thousands of pounds worth of extra taxation payable.  Going to a little bit of trouble at the outset may save money in the long term. 

4. Once I have found a pharmacy to buy, how long will the whole process take? 
If funding is approved and in place, the process can generally take between 6 weeks to 12 weeks.  A lot of factors can affect the length of the process such as obtaining landlord’s consent in relation to property or obtaining responses to due diligence enquiries.

5. If the buyer pulls out of the transaction, how can I try to protect myself on costs?   
At the outset of the transaction, you can try and put in place a set of heads of terms which could include a costs indemnity capped to a sum to cover costs.  These clauses are sometimes difficult to negotiate in current market conditions but not impossible.

6. How can I prevent my seller from talking to other potential buyers? 
Put in place an exclusivity clause in your heads of terms of agreement to lock your seller out of discussions with other buyers for at least a couple of months so you can do due diligence and not waste costs.

7. What are warranties?
The current climate has made buyers more cautious and this is often reflected in the legal paperwork.  Sellers give warranties or statements about key aspects of their business to the buyer in a sale process.  The purpose of these statements is twofold.  Firstly, to get the seller to disclose information against these statements before the purchase takes place and secondly, if the statements prove untrue after purchase then the buyer can in certain circumstances claim against the seller.  It is a standard process and if handled well should not be daunting.  However, if you are selling, you need to be aware of how the process operates and that you will need to take time out with your lawyer to guide you through what you might need to disclose and what provisions may be inserted to help try to minimise any claims.  If you are a buyer then you need to know what specific issues, if any, arising out of the due diligence need to be covered.

8. Does exchange and completion happen on the same day? 
Yes, generally, although it does not have to.  It is easier with a pharmacy business to have a month end completion because of the way that payments are made to the business.  If there is a split exchange and completion, this means that there is a contractual obligation to buy or sell at exchange but a delay until legal and actual completion takes place.  Protections need to be inserted in to the contract to ensure that the business operates in the ordinary course.

9. If I sell, can I buy another pharmacy or do some locum work? 
You can buy another pharmacy but generally not within an agreed distance from your old pharmacy so as to protect the goodwill value of the sold pharmacy.  A similar principle applies for locum positions but anything is possible if you get the consent of the other party or operate outside of the restricted area agreed to protect goodwill. 

10. Are there any steps you can take if you are thinking of selling your pharmacy in the future? 
Yes, give it a health check.  Check that you have staff on employment contracts, have copies of other relevant supplier agreements to hand and all relevant details in relation to the property.

By Hilary D’Cruz

A Corporate Partner and pharmacy specialist legal advisor on the healthcare team at Ansons LLP