The impact of COVID-19 on bank panel valuations and finance applications

COVID-19 has been the most significant challenge that pharmacy has faced in recent years. Pharmacy staff were required to work incredibly long hours and risk their own health to protect the health of others. The Australian public owe the pharmacy industry and its associated professionals a great debt, and should be incredibly grateful for the way that those within the industry conducted themselves during a very difficult time. 

As things have begun to return to normal for many pharmacies, the challenges posed by a frantic six week period are starting to subside. However, COVID-19 is now presenting new challenges for pharmacy owners, and in particular those who are looking to sell or refinance. Because of the significant impact that COVID-19 had on pharmacy trade during a small period of time, panel approved valuers, banks and potential purchasers are having to reconsider how they will assess data from that period. 

Based on recent transactions that I have been directly involved with, as well as a number conversations with industry valuers and bankers, I have summarised the key impacts that COVID-19 is having on pharmacy valuations, and a few steps that you can take to ensure you enjoy a smooth process. 


Most valuers are including new disclaimers or varying existing disclaimers within their reports to satisfy the conditions of their professional insurance. The most common disclaimer relates to the physical site inspection generally required by the banks. The disclaimer essentially says that a site inspection could not be completed and that one should be completed as soon as the rules allow it. In the interim, valuers are using photos taken by the owners or images from the internet. The second disclaimer is much broader and outlines the fact that the pharmacy environment is changing daily and the future is unpredictable. They emphasise the fact that their valuations are based on the figures at hand, however, things may change significantly in a short period of time and they recommend regular monitoring of the business. While the introduction of these disclaimers will not directly impact the value assigned to a pharmacy, they do offer an interesting insight into the way in which the impacts of COVID-19 are viewed. 

Capitalisation Rates

The question that I’m asked most frequently is whether COVID-19 has impacted the capitalisation rates being assigned to pharmacies. Whilst all businesses are assessed on an individual basis, the short answer is no, and there are two key reasons why. Firstly, it is assumed that the impacts of COVID-19 will be temporary and likely negligible by the December quarter. Because pharmacy values for lending purposes are established by assessing their long-term profitability, short term factors are less influential than consistent historical data. Secondly, it is commonly accepted that the pharmacy industry demonstrated great value to society during the pandemic, and this has strengthened the Pharmacy Guild’s leverage in negotiating the 7th agreement. 

Additional Data & Adjustments

Because trade was impacted so severely, valuers and banks need to fully understand the extent of those impacts so adjustments can be made for the purposes of a valuation. This process generally involves undertaking a year on year comparison to establish trends by reviewing script analysis and POS sales reports for the March quarter of 2019 against the March quarter 2020. Whilst there does not appear to be any standardised COVID-19 questions from lenders, many of the banks have begun asking similar questions as part of their review (examples below). Preparing answers to these questions in advance, and compiling the reports outlined above, will help to ensure your application moves as swiftly as possible. That said, banks are facing their own COVID-19 challenges and finance applications are taking longer than they ordinarily would. When planning your settlement timeline, I would suggest allowing four to six weeks to receive an a expression of interest after submitting your application, and approximately 12 weeks to achieve full approval.  

Bank COVID Questions Examples 

  • Has cash flow been impacted due to reduced foot traffic? 
  • What actions are being taken to preserve cash flow? 
  • Is there opportunity to diversify? If so, what impacts might that have? 
  • Is there a reliance on another industry to supply goods and services? Will this impact on the customer and are any alternatives available to mitigate this risk? 
  • What steps have you taken to manage/reduce variable costs? 
  • Does this loan application make sense given current environment? 

– Jack Brown, NSW Sales Manger and Partner at AP Group

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