When you’ve found a pharmacy on the market which suits your budget and situation, it’s time to move to the exciting part: making a formal offer.
The first step to making a formal offer to purchase a pharmacy requires a ‘Letter of Offer’ or ‘Heads of Agreement’ to be submitted to the vendor. This is the ‘pre-contractual’ stage of securing a pharmacy and commencing negotiations, which will lay the foundations for what’s to come.
It’s important you get this stage right – as it can determine the success of the steps that follow – from the sale of business contract all the way to settlement.
So, let’s cover the key components of a Heads of Agreement (HOA) and what happens next.
What is a Heads of Agreement?
Heads of Agreement (HOA) is an initial, often non-binding document that serves as an introduction to the transaction and relationship. It formalises your offer to purchase the pharmacy and includes relevant conditions and milestones.
The key components, conditions and requirements of the offer include…
- The Total Price, which is calculated as Goodwill (F & F inclusive) + Stock
- Making a Deposit which will be held in a trust account (this typically includes an initial deposit and a deposit upon contract signing)
- Due Diligence, which is a comprehensive assessment to confirm the pharmacy is as it was marketed for sale. The HOA will outline the time frames for Due Diligence.
- Finance Clause, which includes a time frame applicable from contract signing.
- Medicare Approval – an administration number must be issued before a change of ownership can occur.
- Authority Applications to the relevant State Pharmacy Authority or council who will approve the change of ownership. It’s best to allow four weeks for Medicare and State Pharmacy Applications to process the application.
- Lease Assignment overview, which is the process of transferring a lease to a new tenant.
- Settlement Date, which is usually 3 to 6 months from when the HOA is signed.
Although the HOA is often non-binding, it’s important you treat this stage with care and consideration as it will give you an added layer of confidence as you move to the next stage: post offer acceptance.
What happens at post offer acceptance?
The real hard work commences after the Heads of Agreement has been agreed.
The settlement process is complex and involves multiple stakeholders, in addition to the vendor and purchaser themselves. Being prepared, organised and having the right team is critical, as it can have a significant bearing on the overall outcome.
Here are the key tasks you will focus on…
- Notify your team,including your lawyer, accountant and finance broker or bank. Your team of professional advisors are critical to achieving a positive settlement outcome. It’s recommended you choose advisors with previous pharmacy experience.
- Set up an ownership structure and register your company entity.
- For Due Diligence, prepare a list of information and reports required within 7 days of signing the HOA.
- Bank Valuation and Finance Application so you can be approved to borrow the required amount, as soon as possible.
Commencing these key tasks as soon as possible gives you the best chance of achieving a prompt and successful settlement.
By being organised, practising good communication and working together with the vendor and key stakeholders, you’ll enable a seamless journey toward pharmacy ownership.
– Ian Fedrick, Partner and QLD Sales Manager at AP Group