Pharmacy Solutions Australia is well placed to comment on what is happening to the prices of pharmacies across the country. We have offices in Melbourne, Sydney and Brisbane and have operated as independent pharmacy business brokers for almost 20 years and transact between 25 and 35 pharmacies per annum.
It is now the reality that prices for pharmacies have softened from the heady heights they reached two years ago. They have softened because of the general caution that exists in the pharmacy industry and the weakened economic conditions of our country.
We have all heard about the exposure of banks to failed pharmacies (which was generally caused by buyers paying too much for pharmacies with ready money from banks) and unsustainable support from wholesalers which led to a price bubble. Pharmacy prices have steadily risen since 1990 when the typical ROI (return on investment) of a sold pharmacy was 25%, or 4 times adjusted net profit. During the buying excitement of a couple of years ago, pharmacies were being sold on returns as low as 11% or 9 times net profit! It is no great revelation, but let me tell you, those days are over!
Competition is great and all good businesses thrive on it. At Pharmacy Solutions we welcome the challenge of increased competition, which not only includes new business brokers into the arena but also a number of accountancy firms laying claim to being independent brokers. We don’t, however, believe that brokers within the pharmacy sales space should be touting that ‘we are still able to achieve 12% or 13% returns’. This is dodgy real estate agent 101. They are simply buying listings by telling vendors that they can get them a price that cannot realistically be achieved in the current market (the odd, very special pharmacy aside).
These brokers are doing a great disservice to the vendors of businesses. Once a pharmacy has been circulated at a fanciful price, the market goes very soft on it and will look elsewhere for more realistically priced businesses. Financial institutions are not going to support transactions at these high multiples and buyers are not going to tip huge cash resources into one business when they could buy two or three with this same amount of money.
It is understandable that pharmacists want to achieve the very best price for their business and that is our job at Pharmacy Solutions Australia; to achieve the very best price for our vendors. But professionalism, honesty and integrity are still very important and there is little point in promising to get an unrealistic price just to get a listing and then tainting the sale.
Pharmacy owners looking to sell need to also remember that it may not always be the best course of action to place a pharmacy on the market immediately! Pharmacy Solutions Australia has comprehensive plans to assist pharmacists who may be struggling to maximise the profitability of their business/es. We are able to present action plans to help you reform some of the major KPI’s of your business. Making the management changes needed to increase the net profitability of your business, prior to placing it on the market, has in the past lead to vastly improved sale prices.
As a final word, we urge all business vendors to assess for themselves the reality of what is being presented in regards to sale price of their business. If it sounds too good, then it probably is. There are genuine buyers out there and they will pay strong prices, but the heady days of two years ago are well and truly gone. Don’t be fooled into believing they are not.
by Peter Marshall, Managing Director Pharmacy Solutions Australia