Buying a pharmacy is a big investment, so you would of course undertake due diligence before making such a substantial commitment. But what should you check? Do you simply have your accountant check the books of the business and your lawyer check the terms of the lease and the bona fides of the vendor? What else should you look for?

Buying a pharmacy is a big investment, so you would of course undertake due diligence before making such a substantial commitment. But what should you check? Do you simply have your accountant check the books of the business and your lawyer check the terms of the lease and the bona fides of the vendor? What else should you look for?

The process of buying a pharmacy can be drawn out and stressful: first you negotiate with the vendor on price and then the respective solicitors negotiate the terms of the contract of sale. In the meantime, you are talking with your bankers and filling out a myriad of paperwork for the finance application.

Often, by the time you have signed the contract, you are absolutely consumed by and committed to the purchase, and you really just want to get settlement over and done with so that you can focus on doing what you do best: operating the business.

Then comes the due diligence period, another step to settlement: it’s a pharmacy, the gross profit looks good, my financiers have agreed to finance the purchase- surely they wouldn’t unless they thought it was a good deal?

It may be a good deal, but would it be a good deal if another pharmacy opened or relocated near-by?

The unique statutory restrictions regarding the location of pharmacies to a large degree maintains the value of pharmacies. What’s the risk of a pharmacy operating near-by, and what effect would that have on value?

An examination of the pharmacy location rules will allow you to assess this risk. This should be done prior to you making an offer.

But what should you do during the due diligence period?

You should enquire with the Australian Community Pharmacy Authority (ACPA) to see whether there are any pending applications for new pharmacies or any applications to relocate existing pharmacies within the vicinity of the pharmacy you are going to purchase.

If there are pending applications, then this should be sufficient for you to abort the transaction or to re-negotiate the purchase price if you are still keen.

For added protection, you should require the vendor to warrant in the contract of sale that it:

  • hasn’t received any notification from the ACPA regarding a new pharmacy or relocation of an existing pharmacy; and
  • has no knowledge of any new pharmacies opening or relocating within the vicinity of the business premises.

It is imperative that throughout the purchase process, no matter how frustrating that process is, that you constantly undertake a broad level of due diligence, because sometimes a deal can be too good to be true.

by Aaron Zoanetti – Lawyer, Pointon Partners