It is not helpful for the pharmacy industry that there are a couple more groups now in (and about to be in) receivership.
As I wrote a few months ago there is pain to be felt this year, but unfortunately this pain is going to be felt by all in the pharmacy industry (not just those in trouble) as banks further consider their lending policies.
The fallout from these problems will mean that there will be more pharmacies on the market than there would normally be (creating downward pressure on sale prices), the banks will be under pressure to tighten their lending and, most importantly, the owners of these businesses will all be under considerable duress.
There are two common reasons for pharmacies failing – the price paid for the asset was far too high and the rent being paid is significantly more than the pharmacy can accommodate. These are not the only two reasons but it can be said that one or both of these issues are present in almost every distressed sale. Situations rarely improve once a pharmacy becomes stressed so it is essential that action is taken before the situation becomes irretrievable.
Hindsight is a wonderful thing but when there has been funding of pharmacies up to 100% it is easy to see how things can go awry very quickly. With the downturn in the economy and regulatory changes, there are many pharmacies which are now valued less than what is outstanding on the mortgages. Without sudden and significant growth, and perhaps also a rental reduction, there is no way that these businesses can survive.
In considering the above I want to temperate it by finding the positives from these occurrences; there are now improving practices in place from all lending institutions, financial institutions are placing greater credence on valuers who have not been manipulated by market forces and good pharmacies for sale are certainly standing out from the pack.
I believe that the pain that is currently being felt will ultimately lead to stronger business principles in all aspects of pharmacy which will continue to make ownership a desirable business option moving forward.
by Peter Marshall, Managing Director Pharmacy Solutions Australia