18 Jun Purchasing Your First Pharmacy: A Step-by-Step Guide

Purchasing your first pharmacy comes with many unknowns and can feel daunting without the right support. Acquiring a pharmacy in the UK requires careful planning, due diligence, and financial arrangements.

Below is a step-by-step guide to acquiring a new pharmacy site:

Step 1: Define Your Requirements

• Decide whether you want to purchase an independent pharmacy or a site that was part of a larger multiple.
• Consider factors such as location, footfall, local competition, and NHS prescription volume.
• Determine whether you prefer to purchase a leasehold or freehold property.

Step 2: Engage a Specialist Sales Agent

• A pharmacy sales agent can help identify suitable opportunities.
• Sales agents have access to a range of sites, including off-market opportunities not yet publicly available.

Step 3: Conduct Initial Due Diligence

Review key business performance indicators, including:

• Turnover, gross profit margins, and net profits.
• NHS and over-the-counter (OTC) sales split.
• Prescription volume and patient demographics.
• Assess regulatory compliance, including GPhC registration and NHS contract status.

Step 4: Secure Financing

Lenders typically offer:

• 80% loan-to-value (LTV) on goodwill (business value).
• 100% funding for freehold property, if included in the purchase.
• If purchasing a leasehold site, lenders will match the loan term to the lease length (e.g. a 15-year lease will typically result in a 15-year loan).
• Interest rates are usually 2.5% above the base rate (currently 4.5%, meaning an effective rate of 7%).
• Banks generally do not fund stock, meaning this must be covered from personal funds.
• Lenders will assess the value of the pharmacy goodwill and the freehold property (if applicable), and this valuation will determine the loan-to-value calculation.

Step 5: Use a Healthcare Finance Broker

Raising finance for a pharmacy purchase can be complex. Engaging a specialist healthcare finance broker can help:

• Secure the funds needed to purchase the target site.
• Structure the transaction in a way that is acceptable to lenders.
• Negotiate competitive market terms for the finance.

A broker’s expertise ensures that the loan application meets lender requirements, increasing the chances of securing favourable funding.

Step 6: Reviewing Financials – EBITDA Adjustments

When reviewing financials, certain costs can be added back into EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation) to reflect the true profitability of the business.

Examples of allowable add-backs include:

• Locum costs – If you plan to work in the pharmacy yourself, these costs can be removed.
• One-off or discretionary expenses that will not continue post-sale.
• Proper EBITDA adjustments can improve borrowing capacity and loan terms.

Step 7: Make an Offer and Agree Heads of Terms

• Submit an offer based on valuation and financial viability.
• Negotiate terms with the seller, including price, handover period, and warranties.
• Sign Heads of Terms (HoTs), outlining the agreement subject to due diligence.

Step 8: Legal & Regulatory Checks

• Instruct a solicitor experienced in pharmacy acquisitions.
• Conduct property searches and review lease agreements (if applicable).
• Ensure NHS contract transfer and GPhC compliance.

Step 9: Final Due Diligence & Exchange of Contracts

• Complete final checks on financials, stock valuation, and liabilities.
• Agree on staff TUPE (Transfer of Undertakings Protection of Employment) arrangements.
• Sign the sale agreement and pay the deposit.

Step 10: Completion & Handover

• Final payment is made, and ownership is transferred.
• Notify NHS England, wholesalers, and service providers.
• Implement business transition plans, including rebranding or operational changes if required.

If you need help raising finance for your pharmacy purchase, please get in touch with Saroma for a free initial consultation. We would be happy to discuss your plans and explore the best way forward.